Heteroskedastic Proxy Vector Autoregressions

Discussion Papers 1876, 32 S.

Helmut Lütkepohl, Thore Schlaak

2020

get_appDownload (PDF  0.81 MB)

Abstract

In proxy vector autoregressive models, the structural shocks of interest are identified by an instrument. Although heteroskedasticity is occasionally allowed for, it is typically taken for granted that the impact effects of the structural shocks are time-invariant despite the change in their variances. We develop a test for this implicit assumption and present evidence that the assumption of time-invariant impact effects may be violated in previously used empirical models.



JEL-Classification: C32
Keywords: Structural vector autoregression, proxy VAR, identification through heteroskedasticity