VAR ’Puzzles’ in Four Big Euro-Zone Countries Under Alternative Estimation Strategies

This paper estimates responses of four European economies to monetary policy shocks in a structural VAR framework. The specification and identification follow and adapt the existing methods of elimination of the ’VAR puzzles’ in open economies. The country VARs are estimated together as a system, with the exchangeable prior that pools some of the information across countries. This approach regularizes the impulse responses in the fashion of the Litterman prior and eliminates some ’puzzling’ responses, particularly in short samples.