Heteroskedastic Proxy Vector Autoregressions
35 Pages Posted: 29 Jun 2020
Date Written: June 2020
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: Suggested Citation