Lutz Kilian, Federal Reserve Bank of Dallas

The Role of the Prior in Estimating VAR Models with Sign Restrictions
Date
Oct 10, 2023, 4:30 pm5:30 pm

Details

Event Description

Several recent studies have expressed concern that the Haar prior typically employed in estimating sign-identified VAR models may be driving the prior about the structural impulse responses and hence their posterior. In this paper, we provide evidence that the quantitative importance of the Haar prior for posterior inference has been overstated. We show that the influence of the Haar prior tends to be negligible in structural VAR models that are tightly identified by sign restrictions, possibly in conjunction with other identifying restrictions as is increasingly common in applied work. Such models imply a narrow identified set for the impulse responses, so which model is selected among the structural models in the identified set, becomes quantitatively unimportant.  Joint with A. Inoue.

Short Bio:  Dr. Lutz Kilian has been a Senior Economic Policy Adviser at the Federal Reserve Bank of Dallas since the summer of 2019. He received his Ph.D. in Economics from the University of Pennsylvania in 1996 and his M.A. in Development Banking from The American University in 1988. He joined the faculty at the University of Michigan in 1996, where he was tenured in 2002 and promoted to Professor of Economics in 2008. Prior to his Ph.D., he worked for the research department of the Inter-American Development Bank in Washington, DC. During 2001-03 he served as the research adviser to the European Central Bank in Frankfurt a.M., Germany. His research interests include time series econometrics, empirical macroeconomics, and energy economics.

Event Category
ORFE Department Colloquia