Two algorithms in sign restrictions: An exploration in an empirical SVAR

This paper investigates whether the key choices for the implementation of algorithms in sign restrictions are consequential for the range of accepted impulse responses in an empirical SVAR. Two algorithms in sign restrictions are considered. In one algorithm, the key choices concern the method by which an initial set of orthogonal shocks are formed and the method by which they are rotated. For this algorithm, the range of accepted responses are invariant to these choices. In the other algorithm, the key choice is the selection of the set of coefficients on the contemporaneous variables in the structural equations which are to be generated. Each selection corresponds to an ordering of the variables. For this algorithm, the range of accepted responses can be affected by the ordering of the variables in which case the algorithm is extended to loop over all variable orderings.