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Heterogeneity-robust granular instruments

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  • Eric Qian

Abstract

Granular instrumental variables (GIV) has experienced sharp growth in empirical macro-finance. The methodology's rise showcases granularity's potential for identification across many economic environments, like the estimation of spillovers and demand systems. I propose a new estimator--called robust granular instrumental variables (RGIV)--that enables studying unit-level heterogeneity in spillovers. Unlike existing methods that assume heterogeneity is a function of observables, RGIV leaves heterogeneity unrestricted. In contrast to the baseline GIV estimator, RGIV allows for unknown shock variances and equal-sized units. Applied to the Euro area, I find strong evidence of country-level heterogeneity in sovereign yield spillovers.

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  • Eric Qian, 2023. "Heterogeneity-robust granular instruments," Papers 2304.01273, arXiv.org, revised Jun 2024.
    • Handle: RePEc:arx:papers:2304.01273
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    References listed on IDEAS

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