Identification and Inference in proxy-SVARs with non-Gaussian shocks

Paritosh Shankarrao Junare

Papers from arXiv.org

Abstract: Two frequent approaches for identifying structural VARs are external instruments, which carry economic content but are often weak, and non-Gaussianity of the shocks, which provides statistical identification but carries no economic meaning. We combine the two strategies in a single generalized method of moments framework. This hybrid approach point-identifies the target shocks while also identifying the non-target shocks up to sign and ordering. Under suitable rank conditions, the higher-order moments of the structural shocks anchor the identification uniformly over the instrument strength. Consequently, under local-to-zero proxy relevance, estimators of the dynamic causal effects remain consistent, and standard asymptotic inference remains valid. Moreover, the Anderson-Rubin confidence sets are substantially narrower than their instrument-only counterparts. The hybrid estimator is also more efficient than either source of identification used in isolation: at any fixed proxy relevance, even a weak instrument increases the efficiency of the estimator through its covariance with the non-Gaussian moment block. Under local deviations from proxy exogeneity, we provide asymptotic bias bounds and show that stronger non-Gaussianity of the shocks compresses the bias. Finally, the over-identified structure yields two mutually orthogonal specification tests for proxy exogeneity and the validity of the higher-order moment conditions. We derive their limiting distributions and provide a bootstrap procedure for finite-sample critical values. Monte Carlo simulations and two applications with identification of oil news-shock and a Euro-area MP shock demonstrate the potential of our framework.

Date: 2026-09, Revised 2026-10
New Economics Papers: this item is included in nep-ecm and nep-ets
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