The analytics of the sign restriction approach to shock identification: a framework for understanding the empirical macro puzzles

We illustrate the relevance of our methodological findings with the example of fiscal policy shock identification. In the literature there is considerable disagreement on the size and even sign of fiscal multipliers. Our framework allows understanding the sources of disagreement as we are able to analytically characterize the set of fiscal multipliers consistent with standard identifying assumptions used in the literature to identify fiscal policy shocks.