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Robust Inference In Structural Vector Autoregressions With Long-Run Restrictions

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  • Chevillon, Guillaume
  • Mavroeidis, Sophocles
  • Zhan, Zhaoguo

Abstract

Long-run restrictions are a very popular method for identifying structural vector autoregressions, but they suffer from weak identification when the data is very persistent, i.e., when the highest autoregressive roots are near unity. Near unit roots introduce additional nuisance parameters and make standard weak-instrument-robust methods of inference inapplicable. We develop a method of inference that is robust to both weak identification and strong persistence. The method is based on a combination of the Anderson-Rubin test with instruments derived by filtering potentially nonstationary variables to make them near stationary using the IVX instrumentation method of Magdalinos and Phillips (2009). We apply our method to obtain robust confidence bands on impulse responses in two leading applications in the literature.

Suggested Citation

  • Chevillon, Guillaume & Mavroeidis, Sophocles & Zhan, Zhaoguo, 2020. "Robust Inference In Structural Vector Autoregressions With Long-Run Restrictions," Econometric Theory, Cambridge University Press, vol. 36(1), pages 86-121, February.
    • Handle: RePEc:cup:etheor:v:36:y:2020:i:1:p:86-121_3
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    Cited by:

    1. Guay, Alain & Pelgrin, Florian, 2023. "Structural VAR models in the Frequency Domain," Journal of Econometrics, Elsevier, vol. 236(1).
    2. Firmin Doko Tchatoka & Lauren Slinger & Virginie Masson, 2020. "Revisiting empirical studies on the liquidity effect: An identication-robust approach," School of Economics and Public Policy Working Papers 2020-02, University of Adelaide, School of Economics and Public Policy.

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