Sign Restrictions with a New-Keynesian Macro Model: Results From a “Quasi-Agnostic” Identification Procedure

IMF Working Papers, August 15, 2025

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Proposes a “quasi-agnostic” sign restriction procedure to identify structural shocks in frequentist structural vector autoregression (SVAR) models.
Argues that low acceptance rates, inherent to agnostic sign restriction procedures, are not necessarily an indication of model misspecification.
Explains that low acceptance rates can be low because agnostic procedures fail to exploit the ex ante priors on the sign of responses of macro variables to structural shocks.

Low acceptance rates in agnostic sign restriction procedures do not automatically imply model misspecification.
Incorporating ex ante priors on the sign of macro-variable responses can increase the efficacy of sign restriction identification.
The proposed “quasi-agnostic” procedure provides an alternative that leverages prior sign information while operating within a frequentist SVAR framework.

Context: frequentist structural vector autoregression (SVAR) models.
Identification approach: sign restrictions with a “quasi-agnostic” modification to exploit ex ante priors on sign responses.
Related technical issues addressed: acceptance rate behavior in agnostic procedures and implications for identification.

Subject: Central bank policy rate, Econometric analysis, Economic theory, Financial services, Inflation, Neoclassical theory, Output gap, Prices, Production, Structural vector autoregression
Keywords: acceptance rate, Central bank policy rate, Inflation, Neoclassical theory, Output gap, output gap response, parametric restriction, parametric restrictions, price puzzle, sign restriction procedure, sign restrictions, standard deviation demand shock, Structural vector autoregression, SVARs, VARs