Identification of SVAR Models by Combining Sign Restrictions With External Instruments

We discuss combining sign restrictions with information in external instruments (proxy variables) to identify structural vector autoregressive (SVAR) models. In one setting, we assume the availability of valid instruments. Sign may then be used further orthogonal shocks, or as an additional piece pin down shocks identified by more precisely. a second that proxy variables are only “plausibly exogenous” and suggest various types inequality bound relation between variable. This can combined conventional narrow set admissible Within proxy-augmented SVAR, conduct Bayesian inference computation Bayes factors. They useful test either sign- IV overidentifying. illustrate usefulness our methodology estimating effects oil supply monetary policy shocks.