Structural VAR output depends on the identification scheme. The reduced-form VAR describes joint dynamics. The structural layer adds assumptions that map reduced-form residuals into named shocks.
Supported Schemes
- Recursive Cholesky identification uses an ordering of variables.
- Sign restrictions keep rotations whose impulse responses match selected signs.
- Long-run recursive restrictions use long-run impact restrictions derived from the VAR dynamics.
- Proxy SVAR uses an external instrument and reports first-stage relevance diagnostics.
- Narrative sign restrictions check shock signs against named historical episodes.
Outputs
The lab reports impulse responses, forecast error variance decomposition, residual covariance, persistence diagnostics, and an audit trail for the chosen identification scheme. Sign-restricted runs report accepted draws and acceptance rate.
Interpretation
An impulse response is conditional on the identification assumptions. A different ordering, sign set, instrument, or narrative episode can change the result. Treat the identification choice as part of the result, not as setup noise.
Limits
- Weak proxy instruments can make proxy SVAR output fragile.
- Sign restrictions can produce a thin accepted set when restrictions are too tight.
- Near-unit-root systems can make long-run restrictions unstable.
References
- Sims, 1980.
- Blanchard and Quah, 1989.
- Uhlig, 2005.
- Stock and Watson, 2012.
- Mertens and Ravn, 2013.