RDP 2026-01: Shock-percentile Restrictions for SVARs 7. Conclusion

Identifying SVARs by imposing numeric bounds on shocks is inherently difficult. Instead, shock-percentile restrictions are based on beliefs about the size of shocks in selected episodes relative to the shock's historical distribution. These restrictions may therefore provide a more credible approach to sharpening identification in settings where narrative information suggests that shocks in selected episodes were relatively large, but the precise magnitudes of these shocks are uncertain.