Using The Global Dimension To Identify Shocks With Sign Restrictions

Identification of structural VARs using sign restrictions has become increasingly popular in the academic literature. This paper argues that identification of shocks can benefit from introducing a global dimension, and shows that summarising information by the median of the available impulse responses - as commonly done in the literature - has some undesired features that can be avoided by using an alternatively proposed summary measure based on a "Scaled median" estimate of the structural impulse response. The paper implements this approach in both a small scale model as originally presented in Uhlig (2005) and a large scale model, introducing the sign restrictions approach to the Global VAR (GVAR) literature that allows exploring the global dimension by adding a large number of sign restrictions.

Provided by: European Central Bank Topic: CXO Date Added: Apr 2011 Format: PDF

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