EconPapers    
Economics at your fingertips  
 

Identification and Estimation of Dynamic Causal Effects in Macroeconomics Using External Instruments

James H. Stock and Mark Watson

Economic Journal, 2018, vol. 128, issue 610, 917-948

Abstract: External sources of as†if randomness — that is, external instruments — can be used to identify the dynamic causal effects of macroeconomic shocks. One method is a one†step instrumental variables regression (local projections – IV); a more efficient two†step method involves a vector autoregression. We show that, under a restrictive instrument validity condition, the one†step method is valid even if the vector autoregression is not invertible, so comparing the two estimates provides a test of invertibility. If, however, lagged endogenous variables are needed as control variables in the one†step method, then the conditions for validity of the two methods are the same.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (341)

Downloads: (external link)
https://doi.org/10.1111/ecoj.12593

Related works:
Working Paper: Identification and Estimation of Dynamic Causal Effects in Macroeconomics Using External Instruments (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:econjl:v:128:y:2018:i:610:p:917-948

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1111/(ISSN)1468-0297

Access Statistics for this article

Economic Journal is currently edited by Estelle Cantillon, Martin Cripps, Andrea Galeotti, Morten Ravn, Kjell G. Salvanes, Frederic Vermeulen, Hans-Joachim Voth and Rachel Kranton

More articles in Economic Journal from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2024-03-31
Handle: RePEc:wly:econjl:v:128:y:2018:i:610:p:917-948