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A Comment on "Measuring Monetary Policy in the Euro Area Using SVARs with Residual Restrictions"

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  • Ratcliff, Ryan D.

Abstract

Badinger and Schiman (2023) use a narrative high-frequency analysis of news and financial markets to develop a small set of restrictions on the structural shocks of a VAR of the Euro area. Their approach does not uniquely identify a structural representation, so their results are based on the distribution of a randomly generated set of parameters that satisfies the restrictions. Their method generates impulse responses that are consistent with macroeconomic theory, but that differ from previous studies that use alternative highfrequency identification strategies. They use this difference to argue that, unlike previous studies, their method is able to separate monetary policy surprises from confounding central bank information shocks - an important new contribution to the literature. I conducted two replication studies of their work on behalf of the Institute for Replication (I4R). First, I used the code provided in their replication package to replicate all of their main results, aside from the small variations expected in replicating a Monte Carlo study. Second, I attempted to use their original data to recreate their results using a different statistical software (Eviews 13). I was unable to replicate their results for two reasons. First, my program is unable to exactly replicate the custom prior they used to generate their reduced-form results. Second, my models routinely generated nonstationary VARs that nevertheless satisfied the identification restrictions. This differs from the author's results, but is not surprising given the ambiguous stationarity of the underlying macro variables.

Suggested Citation

  • Ratcliff, Ryan D., 2024. "A Comment on "Measuring Monetary Policy in the Euro Area Using SVARs with Residual Restrictions"," I4R Discussion Paper Series 160, The Institute for Replication (I4R).
  • Handle: RePEc:zbw:i4rdps:160
    as

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    File URL: https://www.econstor.eu/bitstream/10419/303192/1/I4R-DP160.pdf
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    References listed on IDEAS

    as
    1. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    2. Harald Badinger & Stefan Schiman, 2023. "Measuring Monetary Policy in the Euro Area Using SVARs with Residual Restrictions," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(2), pages 279-305, April.
    3. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Structural VAR; Residual Sign Restrictions; Replication;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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