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Causal Transmission in Reduced-Form Models

Author

Listed:
  • Vassilios Bazinas

    (International Monetary Fund, Washington, DC 20431, USA)

  • Bent Nielsen

    (Department of Economics & Nuffield College, University of Oxford, Oxford OX1 1NF, UK)

Abstract

We propose a method to explore the causal transmission of an intervention through two endogenous variables of interest. We refer to the intervention as a catalyst variable. The method is based on the reduced-form system formed from the conditional distribution of the two endogenous variables given the catalyst. The method combines elements from instrumental variable analysis and Cholesky decomposition of structural vector autoregressions. We give conditions for uniqueness of the causal transmission.

Suggested Citation

  • Vassilios Bazinas & Bent Nielsen, 2022. "Causal Transmission in Reduced-Form Models," Econometrics, MDPI, vol. 10(2), pages 1-25, March.
    • Handle: RePEc:gam:jecnmx:v:10:y:2022:i:2:p:14-:d:778807
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    References listed on IDEAS

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    Cited by:

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