WHY AGNOSTIC SIGN RESTRICTIONS ARE NOT ENOUGH: UNDERSTANDING THE DYNAMICS OF OIL MARKET VAR MODELS

摘要: Sign restrictions on the responses generated by structural vector autoregressive models have been proposed as an alternative approach to use of exclusion impact multiplier matrix. In recent years such increasingly used identify demand and supply shocks in market for crude oil. We demonstrate that sign alone are insufficient infer real price oil shocks. Moreover, conventional assumption all admissible equally likely is routinely violated models, calling into question posterior median characterize When combining with additional empirically plausible bounds magnitude short-run elasticity response activity, however, it possible reduce set model solutions a small number qualitatively similar estimates. The resulting estimates broadly consistent earlier results regarding relative importance based (VAR) identified restrictions, but imply very different dynamics from VAR only.