Identifying VARS Through Heterogeneity: An Application to Bank Runs
Sveriges Riksbank Working Paper Series No. 244
45 Pages Posted: 27 Jan 2011
Date Written: June 7, 2010
We propose to incorporate cross-sectional heterogeneity into structural VARs. Heterogeneity provides an additional dimension along which one can identify structural shocks and perform hypothesis tests. We provide an application to bank runs, based on microeconomic deposit market data. We impose identification restrictions both in the cross-section (across insured and non-insured banks) and across variables (as in macro SVARs). We thus (i) identify bank runs, ii) quantify the contribution of competing theories, and, (iii) evaluate policies such as deposit insurance. The application suggests substantial promise for the approach and has strong policy implications.
Keywords: Identification, SVAR, panel-VAR, Heterogeneity, Bank run
JEL Classification: C3, E5, G01, G21
Suggested Citation: Suggested Citation