Working Paper

Nonparametric Time Varying IV-SVARs: Estimation and Inference

Abstract: This paper studies the estimation and inference of time-varying impulse response functions in structural vector autoregressions (SVARs) identified with external instruments. Building on kernel estimators that allow for nonparametric time variation, we derive the asymptotic distributions of the relevant quantities. Our estimators are simple and computationally trivial and allow for potentially weak instruments. Simulations suggest satisfactory empirical coverage even in relatively small samples as long as the underlying parameter instabilities are sufficiently smooth. We illustrate the methods by studying the time-varying effects of global oil supply news shocks on US industrial production.

Keywords: Time-varying parameters; Nonparametric estimation; Structural VAR; External instruments; Weak instruments; Oil supply news shocks; Impulse response analysis;

JEL Classification: C14; C32; C53; C55;

https://doi.org/10.17016/FEDS.2025.004

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2025-01-06

Number: 2025-004