Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/180310
Authors: 
Baumeister, Christiane
Hamilton, James D.
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper No. 7048
Abstract: 
Reporting point estimates and error bands for structural vector autoregressions that are only set identified is a very common practice. However, unless the researcher is persuaded on the basis of prior information that some parameter values are more plausible than others, this common practice has no formal justification. When the role and reliability of prior information is defended, Bayesian posterior probabilities can be used to form an inference that incorporates doubts about the identifying assumptions. We illustrate how prior information can be used about both structural coefficients and the impacts of shocks, and propose a new distribution, which we call the asymmetric t distribution, for incorporating prior beliefs about the signs of equilibrium impacts in a nondogmatic way. We apply these methods to a three-variable macroeconomic model and conclude that monetary policy shocks were not the major driver of output, inflation, or interest rates during the Great Moderation.
Subjects: 
structural vector autoregressions
set identification
monetary policy
impulse-response functions
historical decompositions
model uncertainty
informative priors
JEL: 
C11
C32
E52
Document Type: 
Working Paper

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