<p>Why do we need sign restrictions in a VAR model? To solve puzzles in the data, it seems. And where do the signs come from? From theory, I guess. And about other restrictions we use in VAR models, where do they come from? Maybe intuition? But intuition is based on theory, yeah? So it seems data itself is not enough if we put restrictions on the VAR to identify shocks. Is this any better than using theory-based models like estimated DSGEs?</p>

CC BY-SA 4.0
2022-04-19T08:17:01.157Z
How do you define better? Also there is a lot of ranting in the question that makes it less clear what your question is asking about, perhaps consider trimming it down and focus on the question
1muflon1
CC BY-SA 4.0
2022-04-19T22:39:25.977Z
It would help if you can be more clear about who the "they" in your post are, and include explicit citations for their opinions/views quoted herein.
Herr K.
CC BY-SA 4.0
2022-04-20T02:16:09.693Z
ok...I will trim it down. Thanks!!
Emmanuel Ameyaw
CC BY-SA 4.0
2022-04-20T02:31:56.550Z
@Herr K THANKS! Critiques of estimated DSGEs are common. It is not difficult to find on google...:). I am just wondering, if not DSGE, then what? VAR? But is it any better since the VAR literature put a lot of restrictions on the VAR, and those restrictions come from theory embedded in DSGE.
Emmanuel Ameyaw
CC BY-SA 4.0
2022-04-20T02:37:22.120Z
@1muflon1 Better for identifying transmission mechanisms, I mean.
Emmanuel Ameyaw
CC BY-SA 4.0
2022-04-20T07:15:26.223Z
There is a huge literature on the relationship between structural VARs and DSGE models. I don't think this is something that can be given in a simple answer here.
Michael Greinecker
CC BY-SA 4.0
2022-04-20T09:03:57.787Z
@Michael Greinecker I think so. So, as a researcher, you choose where to belong, I guess. GLENN D. RUDEBUSCH and others criticize VARs and say they do not make sense. Others criticize DSGEs and say they do not make sense. So then what to use to study dynamical relationships and transmission mechanisms of some shock or policy? It boils down to which one you prefer, I guess. But my problem is some authors try to validate DSGE with VAR, but the VAR they use contains restrictions based on DSGE and common theory-based conventional wisdom.
Emmanuel Ameyaw
CC BY-SA 4.0
2022-04-20T11:21:18.297Z
@EmmanuelAmeyaw Specifics matter here a lot. If restrictions from a DSGE make an SVAR overidentified, one can use the data to test the restrictions. That there is a complicated debate does not mean that it all just a matter of preference. But it is unlikely that an answer can resolve the debate.
Michael Greinecker
CC BY-SA 4.0
2022-04-23T15:55:59.103Z
@Michael Greinecker. Thanks, Micheal. If I may ask, what do you mean by If restrictions from a DSGE make an SVAR overidentified, one can use the data to test the restrictions. Do you mean testing restrictions in an overidentified SVAR model when those restrictions come from a DSGE model? But that does not necessarily mean results from the SVAR, like IRFs, are correct, yeah? For example, the same SVAR model with the same restrictions for different sample periods can produce different IRFs.
Emmanuel Ameyaw
CC BY-SA 4.0
2022-04-23T17:07:41.900Z
Yes, pretty much. But there is no reason to believe any method gives you magically correct results. There is a reason why there is a debate.
Michael Greinecker
CC BY-SA 4.0
2022-04-24T04:10:05.990Z
@Michael Greinecker. It seems like it. Econometricians put restrictions to confirm their prior beliefs (their bias..:)). Theorists make assumptions to confirm their bias too. The true mechanism of how shocks propagate, no one knows...:).
Emmanuel Ameyaw
CC BY-SA 4.0
2022-04-24T06:44:31.040Z
That is your spin, not mine.
Michael Greinecker
CC BY-SA 4.0
2022-04-25T02:14:11.073Z
@Michael Greinecker. lol. So what's your spin? Or you don't have one? :). What is your view on the debate?...if I may ask?
Emmanuel Ameyaw
<macroeconomics>
Are empirical models any better than theoretical models in economics?
Emmanuel Ameyaw
# Are empirical models any better than theoretical models in economics?

(Asked by: username_0 on 2022-04-19)

Why do we need sign restrictions in a VAR model? To solve puzzles in the data, it seems. And where do the signs come from? From theory, I guess. And about other restrictions we use in VAR models, where do they come from? Maybe intuition? But intuition is based on theory, yeah? So it seems data itself is not enough if we put restrictions on the VAR to identify shocks. Is this any better than using theory-based models like estimated DSGEs?

**Tags:** macroeconomics
> **Comments:**
> **username_1**: How do you define better? Also there is a lot of ranting in the question that makes it less clear what your question is asking about, perhaps consider trimming it down and focus on the question  
> **username_2**: It would help if you can be more clear about who the "they" in your post are, and include explicit citations for their opinions/views quoted herein.  
> **username_0**: ok...I will trim it down. Thanks!!  
> **username_0**: @Herr K THANKS! Critiques of estimated DSGEs are common. It is not difficult to find on google...:). I am just wondering, if not DSGE, then what? VAR? But is it any better since the VAR literature put a lot of restrictions on the VAR, and those restrictions come from theory embedded in DSGE.  
> **username_0**: @1muflon1 Better for identifying transmission mechanisms, I mean.  
> **username_3**: There is a huge literature on the relationship between structural VARs and DSGE models. I don't think this is something that can be given in a simple answer here.  
> **username_0**: @Michael Greinecker I think so. So, as a researcher, you choose where to belong, I guess. GLENN D. RUDEBUSCH and others criticize VARs and say they do not make sense. Others criticize DSGEs and say they do not make sense. So then what to use to study dynamical relationships and transmission mechanisms of some shock or policy? It boils down to which one you prefer, I guess. But my problem is some authors try to validate DSGE with VAR, but the VAR they use contains restrictions based on DSGE and common theory-based conventional wisdom.  
> **username_3**: @EmmanuelAmeyaw Specifics matter here a lot. If restrictions from a DSGE make an SVAR overidentified, one can use the data to test the restrictions. That there is a complicated debate does not mean that it all just a matter of preference. But it is unlikely that an answer can resolve the debate.  
> **username_0**: @Michael Greinecker. Thanks, Micheal. If I may ask, what do you mean by If restrictions from a DSGE make an SVAR overidentified, one can use the data to test the restrictions. Do you mean testing restrictions in an overidentified SVAR model when those restrictions come from a DSGE model? But that does not necessarily mean results from the SVAR, like IRFs, are correct, yeah? For example, the same SVAR model with the same restrictions for different sample periods can produce different IRFs.  
> **username_3**: Yes, pretty much. But there is no reason to believe any method gives you magically correct results. There is a reason why there is a debate.  
> **username_0**: @Michael Greinecker. It seems like it. Econometricians put restrictions to confirm their prior beliefs (their bias..:)). Theorists make assumptions to confirm their bias too. The true mechanism of how shocks propagate, no one knows...:).  
> **username_3**: That is your spin, not mine.  
> **username_0**: @Michael Greinecker. lol. So what's your spin? Or you don't have one? :). What is your view on the debate?...if I may ask?  

---

## 0 answers

