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Algorithm-Driven SVARs: Navigating the Wilderness of Big Data

Every SVAR result is conditional on two choices: the restrictions that identify the shock and the variables on which they operate. The literature disciplines the first; the second is chosen by hand.

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2026
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arxiv.org/abs/2608.05017ARXIV-DEFAULT
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Abstract

Every SVAR result is conditional on two choices: the restrictions that identify the shock and the variables on which they operate. The literature disciplines the first; the second is chosen by hand. We develop a Bayesian methodology that constructs information sets, uses an out-of-sample criterion, and retains the largest system it admits. Under recursive identification, output rises with housing production rather than household credit alone. For monetary policy, an anchor-free joint Bayesian proxy SVAR with multiple instruments strengthens the credit spread channel. A core system augmented with the selected corporate spread identifies expected default risk as a potent transmission margin.