Identification with External Instruments in Structural VARs under Partial Invertibility

Silvia Miranda-Agrippino and Giovanni Ricco ()

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: This paper discusses the conditions for identification in SVAR-IVs when only the shock of interest or a subset of the structural shocks can be recovered as a linear combination of the VAR residuals. This condition of partial invertibility is very general, often of empirical relevance, and less stringent than the standard full invertibility that is routinely assumed in the SVAR literature. We show that, underpartial invertibility, the dynamic responsescan be correctly recoveredusing an external instrument even when this correlates with leads and lags of other invertible shocks. We call this a limited lead-lag exogeneity condition. We evaluate our results in a simulated environment, and provide an empirical application to the case of monetary policy shocks.

Keywords: Identification with External Instruments; Structural VAR; Invertibility; Monetary Policy Shocks (search for similar items in EconPapers)
JEL-codes: C32 C36 E30 E52 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1213

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