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Identification with external instruments in structural VARs

Author

Listed:
  • Agrippino, Silvia Miranda

    (Bank of England)

  • Ricco, Giovanni

    (University of Warwick)

Abstract
IV methods have become the leading approach to identify the effects of macroeconomic shocks. Conditions for identification generally involve all the shocks in the VAR even when only a subset of them is of interest. This paper provides more general conditions that only involve the shocks of interest and the properties of the instrument of choice. We introduce a heuristic and a formal test to guide the specification of the empirical models, and provide formulas for the bias when the conditions are violated. We apply our results to the study of the transmission of conventional and unconventional monetary policy shocks.

Suggested Citation

  • Agrippino, Silvia Miranda & Ricco, Giovanni, 2022. "Identification with external instruments in structural VARs," Bank of England working papers 973, Bank of England.
    • Handle: RePEc:boe:boeewp:0973
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    3. Bundick, Brent & Herriford, Trenton & Smith, A. Lee, 2024. "The Term Structure of Monetary Policy Uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 160(C).
    4. Eric T. Swanson, 2024. "The Macroeconomic Effects of the Federal Reserve’s Conventional and Unconventional Monetary Policies," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(3), pages 1152-1184, September.
    5. Luca Eduardo Fierro & Mario Martinoli, 2024. "An Empirical Inquiry into the Distributional Consequences of Energy Price Shocks," LEM Papers Series 2024/30, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    6. Jiang, Shifu, 2024. "The effect of monetary policies on inflation: A fiscal perspective," Economics Letters, Elsevier, vol. 241(C).
    7. Karau, Sören, 2024. "Relative monetary policy and exchange rates," Discussion Papers 40/2024, Deutsche Bundesbank.
    8. Georgiadis, Georgios & Jarociński, Marek, 2023. "Global spillovers from multi-dimensional US monetary policy," Working Paper Series 2881, European Central Bank.
    9. Carlos Alba & Julio A. Carrillo & Raúl Ibarra, 2024. "Information Effects of US Monetary Policy Announcements on Emerging Economies: Evidence from Mexico," Working Papers 2024-14, Banco de México.
    10. Alessandri, Piergiorgio & Gazzani, Andrea & Vicondoa, Alejandro, 2023. "Are the effects of uncertainty shocks big or small?," European Economic Review, Elsevier, vol. 158(C).
    11. Endong Wang, 2024. "Structural counterfactual analysis in macroeconomics: theory and inference," Papers 2409.09577, arXiv.org.
    12. Peter Ajonghakoh Foabeh & Vesarach Aumeboonsuke, 2024. "Resilience of Developing Economies to External Shocks: Empirical Evidence from CEMAC Countries," Journal of Sustainable Development, Canadian Center of Science and Education, vol. 17(3), pages 1-81, May.

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    More about this item

    Keywords

    Identification with external instruments; structural VAR; invertibility; monetary policy shocks;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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