Sign restrictions within blocks and cholesky across blocks

[dnfloro1]

Hi Tom,

Which codes on sign restrictions (on the available paper replication samples) do you think I should work with when I want a two-country block, with the WITHIN block having sign restrictions identification, and ACROSS blocks
having a cholesky identification? See page 40 of this paper by Sam Elekdag and Han Fei http://www.imf.org/external/pubs/ft/wp/2012/wp1243.pdf to illustrate what I mean.

have a great day!

best regards
dnfloro1

[TomDoan]

If I understand what they're doing, it seems that their method is much more complicated than it needs to be. If you have X1 and X2 blocks, and want to pick shocks in the X2 block to not hit X1 contemporaneously, all you have to do is take a Cholesky factorization (just standard---block isn't needed), and make the X1 shocks linear just in the first dim(X1) Cholesky shocks and the X2 shocks linear just in the last dim(X2) Cholesky shocks.