Review of Proxy Vector Autoregressive Analysis

Martin Bruns and Helmut Lütkepohl

No 2155, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: In structural vector autoregressive analysis it has become quite popular to identify some structural shocks of interest by external instruments or proxies. This study points out a range of areas where such proxies have been used and sketches the way the proxies have been constructed. It reviews identification and estimation methods that have been considered in this context. Moreover, it points out some features such as heteroskedasticity, nonfundamentalness of the shocks and violations of the standard assumptions for proxies that may result in complications.

Keywords: Structural vector autoregression; proxy VAR; local projection; weak instruments; internal instruments; external instruments; fundamental shocks (search for similar items in EconPapers)
JEL-codes: C32 (search for similar items in EconPapers)
Pages: 38 p.
Date: 2026
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