Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/129934 
Year of Publication: 
2015
Series/Report no.: 
Working Papers No. 2015-18
Publisher: 
Banco de México, Ciudad de México
Abstract: 
We study the ability of exclusion and sign restrictions to measure monetary policy shocks in small open economies. Our Monte Carlo experiments show that sign restrictions systematically overshoot inflation responses to the said shock, so we propose to add prior information to limit the number of economically implausible responses. This modified procedure robustly recovers the transmission of the shock, whereas exclusion restrictions show large sensitivity to the assumed monetary transmission mechanism of the model and the set of foreign variables included in the VAR. An application with Mexican data supports our findings.
Subjects: 
Exclusion Restrictions
Sign Restrictions
Small Open Economy
Monetary Policy Shock
JEL: 
C32
E52
Document Type: 
Working Paper
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