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Using The Global Dimension To Identify Shocks With Sign Restrictions

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Executive Summary

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.

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