Giovanni Angelini, Luca Fanelli, Luca Neri
arXiv 13 Mar 2024 · Econometrics · 2 citations (OpenAlex)
arXiv:2403.08753 · PDF · DOI · OpenAlex · Extracted main text
When in proxy-SVARs the covariance matrix of VAR disturbances is subject to exogenous, permanent breaks that cause IRFs to change across volatility regimes, even strong, exogenous external instruments yield inconsistent estimates of the dynamic causal effects. However, if these volatility shifts are properly incorporated into the analysis through (testable) "stability restrictions", we demonstrate that the target IRFs are point-identified and can be estimated consistently under a necessary and sufficient rank condition. If the shifts in volatility are sufficiently informative, standard asymptotic inference remains valid even with (i) local-to-zero covariance between the proxies and the instrumented structural shocks, and (ii) potential failures of instrument exogeneity. Intuitively, shifts in volatility act similarly to strong instruments that are correlated with both the target and non-target shocks. We illustrate the effectiveness of our approach by revisiting a seminal fiscal proxy-SVAR for the US economy. We detect a sharp change in the size of the tax multiplier when the narrative tax instrument is complemented with the decline in unconditional volatility observed during the transition from the Great Inflation to the Great Moderation. The narrative tax instrument contributes to identify the tax shock in both regimes, although our empirical analysis raises concerns about its "statistical" validity.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Mertens, K. and Ravn, M (2014) A reconciliation of SVAR and narrative estimates of tax multipliers | 1.000 | 11 | 3 | 100% |
| 2 | Keweloh, S. A., Klein, M., and Prüser, J (2024) Estimating fiscal multipliers by combining statistical identification with potentially endogenous proxies | 0.811 | 4 | 2 | 100% |
| 3 | Bai, J (2000) Vector autoregressive models with structural changes in regression coefficients and in variance-covariance matrices | 0.737 | 3 | 2 | 100% |
| 4 | Stock, J. H. and Watson, M (2018) Identification and estimation of dynamic causal effects in macroeconomics using external instruments | 0.737 | 3 | 2 | 100% |
| 5 | Lewis, D. J (2021) Identifying shocks via time-varying volatility | 0.644 | 4 | 1 | 100% |
| 6 | Angelini, G. and Fanelli, L (2019) Exogenous uncertainty and the identification of structural vector autoregressions with external instruments self | 0.644 | 2 | 2 | 100% |
| 7 | Arias, J. E., Rubio-Ramírez, J. F., and Waggoner, D. F (2021) Inference in bayesian proxy-SVARs | 0.644 | 2 | 2 | 100% |
| 8 | Giacomini, R., Kitagawa, T., and Read, M (2022) Robust bayesian inference in proxy SVARs | 0.644 | 2 | 2 | 100% |
| 9 | Lanne, M. and Lütkepohl, H (2008) Identifying monetary policy shocks via changes in volatility | 0.644 | 2 | 2 | 100% |
| 10 | Magnusson, L. M. and Mavroeidis, S (2014) Identification using stability restrictions | 0.644 | 2 | 2 | 100% |
Showing the top 10 of 36 scored citations.
arXiv econ.EM papers that cite this one, ranked by how heavily they lean on it.
| Citing paper | Intensity | Mentions | Sections | |
|---|---|---|---|---|
| 1 | Beyond Validity: SVAR Identification Through the Proxy Zoo | 0.511 | 2 | 1 |
| 2 | Efficient two-sample instrumental variable estimators with change points and near-weak identification | 0.405 | 1 | 1 |