Research Discussion Paper – RDP 2023-07 Identification and Inference under Narrative Restrictions

Contents

• Introduction
• Bivariate Example
• General Framework
• Identification under NR
• Bayesian Inference under NR
• Frequentist Coverage
• Empirical Application: Dynamic Effects of US Monetary Policy
• Conclusion
• Appendix A: Numerical Implementation
• Appendix B: Proofs
• References

We thank Isaiah Andrews, Sophocles Mavroeidis, Karel Mertens, José Luis Montiel Olea, Marco Petterson, Mikkel Plagborg-Møller, Franck Portier, Morten Ravn, Christian Wolf and seminar participants at several venues for helpful comments. We gratefully acknowledge financial support from ERC grants (numbers 536284 and 715940) and the ESRC Centre for Microdata Methods and Practice (CeMMAP) (grant number RES-589-28-0001). This is a revised version of a previously circulated working paper, which also formed the basis for Chapter 6 of Matthew Read’s PhD dissertation at University College London. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Chicago, the Federal Reserve System or the Reserve Bank of Australia. Any errors are the sole responsibility of the authors.

CeMMAP and Department of Economics, University College London and Federal Reserve Bank of Chicago [*]

CeMMAP and Department of Economics, Brown University and Department of Economics, University College London [**]

Economic Research Department, Reserve Bank of Australia [***]