Title: Two algorithms in sign restrictions: an exploration in an empirical SVAR

Authors: Lance A. Fisher; Hyeon-seung Huh

Addresses: Department of Economics, Macquarie University, Sydney, Australia ' School of Economics, Yonsei University, 50 Yonsei-ro, Seodaemun-gu, Seoul, 03722, Republic of Korea

Abstract: This paper investigates whether the key choices for the implementation of algorithms in sign restrictions are consequential for the range of accepted impulse responses in an empirical SVAR. Two algorithms in sign restrictions are considered. In one algorithm, the key choices concern the method by which an initial set of orthogonal shocks are formed and the method by which they are rotated. For this algorithm, the range of accepted responses are invariant to these choices. In the other algorithm, the key choice is the selection of the set of coefficients on the contemporaneous variables in the structural equations which are to be generated. Each selection corresponds to an ordering of the variables. For this algorithm, the range of accepted responses can be affected by the ordering of the variables in which case the algorithm is extended to loop over all variable orderings.

Keywords: structural vector autoregressions; sign restrictions; Givens rotations; QR decomposition; instrumental variables; impulse responses.

DOI: 10.1504/IJCEE.2021.116387

International Journal of Computational Economics and Econometrics, 2021 Vol.11 No.3, pp.304 - 321

Received: 01 Aug 2019
Accepted: 04 Jan 2020
Published online: 22 Jul 2021 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article