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Journal of Economic Literature: Vol. 49 No. 4 (December 2011)

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Sign Restrictions in Structural Vector Autoregressions: A Critical Review

Article Citation

Fry, Renée, and Adrian Pagan. 2011. "Sign Restrictions in Structural Vector Autoregressions: A Critical Review." Journal of Economic Literature, 49(4): 938-60.

DOI: 10.1257/jel.49.4.938

Abstract

The paper provides a review of the estimation of structural vector autoregressions with sign restrictions. It is shown how sign restrictions solve the parametric identification problem present in structural systems but leaves the model identification problem unresolved. A market and a macro model are used to illustrate these points. Suggestions have been made on how to find a unique model. These are reviewed. An analysis is provided of whether one can recover the true impulse responses and what difficulties might arise when one wishes to use the impulse responses found with sign restrictions. (JEL C32, C51, E12)

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Authors

Fry, Renée (Australian National U)
Pagan, Adrian (U Sydney)

JEL Classifications

C32: Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
C51: Model Construction and Estimation
E12: General Aggregative Models: Keynes; Keynesian; Post-Keynesian


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