Identifying structural VARs from sparse narrative instruments: Dynamic effects of US macroprudential policies

Katarzyna Budnik () and Gerhard Rünstler

Journal of Applied Econometrics, 2023, vol. 38, issue 2, 186-201

Abstract: We study identification in Bayesian proxy VARs for instruments that consist of sparse qualitative observations indicating the signs of shocks in specific periods. We propose the Fisher discriminant regression and a non‐parametric sign concordance criterion as two alternative methods for achieving correct inference in this case. The former represents a minor deviation from a standard proxy VAR, whereas the non‐parametric approach builds on set identification. Our application to US macroprudential policies finds persistent declines in credit volumes and house prices together with moderate declines in GDP and inflation and a widening of corporate bond spreads after a tightening of capital requirements or mortgage underwriting standards.

Date: 2023
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https://doi.org/10.1002/jae.2945

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Working Paper: Identifying structural VARs from sparse narrative instruments: dynamic effects of U.S. macroprudential policies (2020)
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