A Simple Instrument for Proxy Vector Autoregressive Analysis

28 Pages Posted: 16 Oct 2020

See all articles by Lukas Boer

Lukas Boer

German Institute for Economic Research (DIW Berlin); Humboldt University of Berlin

Helmut Lütkepohl

Free University of Berlin (FUB)

Date Written: October 2020

Abstract

A major challenge for proxy vector autoregressive analysis is the construction of a suitable instrument variable for identifying a shock of interest. We propose a simple proxy that can be constructed whenever the dating and sign of particular shocks are known. It is shown that the proxy can lead to impulse response estimates of the impact effects of the shock of interest that are nearly as efficient as or even more efficient than estimators based on a conventional, more sophisticated proxy.

Keywords: GMM, heteroskedastic VAR, instrumental variable estimation, proxy VAR, structural vector autoregression

JEL Classification: C32

Suggested Citation

Boer, Lukas and Lütkepohl, Helmut, A Simple Instrument for Proxy Vector Autoregressive Analysis (October 2020). DIW Berlin Discussion Paper No. 1905, Available at SSRN: https://ssrn.com/abstract=3711360 or http://dx.doi.org/10.2139/ssrn.3711360

Lukas Boer

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

Mohrenstraße 58
Berlin, 10117
Germany

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, Berlin 10099
Germany

Helmut Lütkepohl (Contact Author)

Free University of Berlin (FUB)

Otto Suhr Institut for Political Science\
Ihnestrasse 21
Berlin
Germany

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