Heteroskedastic Proxy Vector Autoregressions

35 Pages Posted: 29 Jun 2020

See all articles by Helmut Lütkepohl

Helmut Lütkepohl

Free University of Berlin (FUB)

Thore Schlaak

German Institute for Economic Research (DIW Berlin)

Date Written: June 2020

Abstract

In proxy vector autoregressive models, the structural shocks of interest are identified by an instrument. Although heteroskedasticity is occasionally allowed for, it is typically taken for granted that the impact effects of the structural shocks are time-invariant despite the change in their variances. We develop a test for this implicit assumption and present evidence that the assumption of time-invariant impact effects may be violated in previously used empirical models.

Keywords: Structural vector autoregression, proxy VAR, identification through heteroskedasticity

JEL Classification: C32

Suggested Citation

Lütkepohl, Helmut and Schlaak, Thore, Heteroskedastic Proxy Vector Autoregressions (June 2020). DIW Berlin Discussion Paper No. 1876, Available at SSRN: https://ssrn.com/abstract=3634441 or http://dx.doi.org/10.2139/ssrn.3634441

Helmut Lütkepohl (Contact Author)

Free University of Berlin (FUB)

Otto Suhr Institut for Political Science\
Ihnestrasse 21
Berlin
Germany

Thore Schlaak

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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