Filippo Ferroni (Università di Bologna) - Identifying Non-Gaussian Structural Shocks

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Research Seminar - Filippo Ferroni (Università di Bologna) - Identifying Non-Gaussian Structural Shocks

Co-authors: Philippe Andrade (FRB Boston) and Leonardo Melosi (European University Institute, De Nederlandsche Bank, & CEPR)

Abstract
We develop a method that sharpens identification by exploiting non-Gaussian features of structural shocks in a robust and tractable way. By combining inequality restrictions on higher-order moments with standard set-identifying constraints, such as sign restrictions, the approach is well suited to investigate the effects of fat-tailed and/or asymmetric shocks. Our method leverages the large leptokurtosis of monetary policy shocks in the data to recover the correct output response, salient narrative episodes, and a plausible policy reaction function. Applying the method to sovereign and geopolitical risk shocks, we uncover sizable macroeconomic effects that remain hidden under conventional identification schemes.

 

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