Combining sign and parametric restrictions in SVARs by utilising Givens rotations

Lance Fisher, Hyeon Seung Huh

Research output: Contribution to journalArticle

Abstract

This paper shows how to impose parametric restrictions in conjunction with sign restrictions to separate the shocks in SVARs. In sign restrictions, it is common to rotate an initial set of orthogonal shocks by utilising a Givens rotation matrix. In this paper, we show how to construct the Givens rotation matrix when parametric restrictions are part of the identification in sign restricted SVARs. The properties of Givens matrices are such that the parametric restrictions imply a system of equations which can be solved for the unknown parameters (or “angles”) in a rotation matrix, conditional on the values of the parameters which are drawn. The Givens rotation matrix formed in this manner is such that the parametric restrictions on the impulse responses are satisfied on each draw in sign restrictions. The method is demonstrated in an influential SVAR and is shown to generate results similar to those from a recent method which imposes the orthogonality and zero parametric restrictions on the columns of the rotation matrix in sign restrictions.
Original languageEnglish
Article number20180104
Number of pages19
JournalStudies in Nonlinear Dynamics and Econometrics
Volume24
Issue number3
Early online date2019
DOIs
Publication statusPublished - Jun 2020

Keywords

  • Givens rotations
  • QR decomposition
  • sign and parametric restrictions
  • structural vector autoregressions

Fingerprint Dive into the research topics of 'Combining sign and parametric restrictions in SVARs by utilising Givens rotations'. Together they form a unique fingerprint.

  • Cite this