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Robust inference in structural VARs with long-run restrictions

Author

Listed:
  • Chevillon, Guillaume

    (ESSEC Research Center, ESSEC Business School)

  • Mavroeidis, Sophocles

    (Department of Economics and Institute for New Economic Thinking at the Oxford Martin School, Oxford University)

  • Zhan, Zhaoguo

    (Department of Economics, Finance and Quantitative Analysis, Kennesaw State University)

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 identi fication and strong persistence. The method is based on a combination of the Anderson-Rubin test with instruments derived by fi ltering potentially non-stationary variables to make them near stationary. We apply our method to obtain robust con fidence bands on impulse responses in two leading applications in the literature.

Suggested Citation

  • Chevillon, Guillaume & Mavroeidis, Sophocles & Zhan, Zhaoguo, 2016. "Robust inference in structural VARs with long-run restrictions," ESSEC Working Papers WP1702, ESSEC Research Center, ESSEC Business School.
    • Handle: RePEc:ebg:essewp:dr-17002
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    References listed on IDEAS

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    More about this item

    Keywords

    weak instruments; identification; SVARs; near unit roots; IVX;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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