Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260390 
Year of Publication: 
2022
Series/Report no.: 
cemmap working paper No. CWP09/22
Publisher: 
Centre for Microdata Methods and Practice (cemmap), London
Abstract: 
We compare two approaches to using information about the signs of structural shocks at specific dates within a structural vector autoregression (SVAR): imposing 'narrative restrictions' (NR) on the shock signs in an otherwise setidentified SVAR; and casting the information about the shock signs as a discretevalued 'narrative proxy' (NP) to point-identify the impulse responses. The NP is likely to be 'weak' given that the sign of the shock is typically known in a small number of periods, in which case the weak-proxy robust confidence intervals in Montiel-Olea et al. (2021) are the natural approach to conducting inference. However, we show both theoretically and via Monte Carlo simulations that these confidence intervals have distorted coverage - which may be higher or lower than the nominal level - unless the sign of the shock is known in a large number of periods. Regarding the NR approach, we show that the prior-robust Bayesian credible intervals from Giacomini et al. (2021a) deliver coverage exceeding the nominal level, but which converges towards the nominal level as the number of NR increases.
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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