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Identifying VARs through Heterogeneity: An Application to Bank Runs

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Author Info

  • De Graeve, Ferre

    ()
    (Research Department, Central Bank of Sweden)

  • Karas, Alexei

    ()
    (Roosevelt Academy)

Abstract

We propose to incorporate cross-sectional heterogeneity into structural VARs. Heterogeneity provides an additional dimension along which one can identify structural shocks and perform hypothesis tests. We provide an application to bank runs, based on microeconomic deposit market data. We impose identification restrictions both in the cross-section (across insured and non-insured banks) and across variables (as in macro SVARs). We thus (i) identify bank runs, (ii) quantify the contribution of competing theories, and, (iii) evaluate policies such as deposit insurance. The application suggests substantial promise for the approach and has strong policy implications.

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Bibliographic Info

Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 244.

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Length: 49 pages
Date of creation: 01 Jul 2010
Date of revision:
Handle: RePEc:hhs:rbnkwp:0244

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
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Related research

Keywords: Identification; SVAR; panel-VAR; Heterogeneity; Bank run;

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References

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  1. Jesús Fernández-Villaverde & Juan F. Rubio-Ramírez & Thomas J. Sargent & Mark W. Watson, 2007. "ABCs (and Ds) of Understanding VARs," American Economic Review, American Economic Association, vol. 97(3), pages 1021-1026, June.
  2. Juan F. Rubio-Ramirez & Daniel Waggoner & Tao Zha, 2006. "Markov-Switching Structural Vector Autoregressions: Theory and Application," Computing in Economics and Finance 2006 69, Society for Computational Economics.
  3. Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
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Cited by:
  1. Gert Peersman & Wolf Wagner, 2014. "Shocks to Bank Lending, Risk-Taking, Securitization, and their Role for U.S. Business Cycle Fluctuations," CESifo Working Paper Series 4701, CESifo Group Munich.
  2. Solntsev, O. & Mamonov, M. & Pestova, A. & Magomedova, Z., 2011. "Experience in Developing Early Warning System for Financial Crises and the Forecast of Russian Banking Sector Dynamic in 2012," Journal of the New Economic Association, New Economic Association, issue 12, pages 41-76.
  3. Martin Brown & Stefan Trautmann & Razvan Vlahu, 2012. "Contagious Bank Runs: Experimental Evidence," DNB Working Papers 363, Netherlands Central Bank, Research Department.
  4. Canova, Fabio & Ciccarelli, Matteo, 2013. "Panel vector autoregressive models: a survey," Working Paper Series 1507, European Central Bank.

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