Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Cleveland
Working Papers (Old Series)
Identifying Structural VARs with a Proxy Variable and a Test for a Weak Proxy
Kurt Graden Lunsford

This paper develops a simple estimator to identify structural shocks in vector autoregressions (VARs) by using a proxy variable that is correlated with the structural shock of interest but uncorrelated with other structural shocks. When the proxy variable is weak, modeled as local to zero, the estimator is inconsistent and converges to a distribution. This limiting distribution is characterized, and the estimator is shown to be asymptotically biased when the proxy variable is weak. The F statistic from the projection of the proxy variable onto the VAR errors can be used to test for a weak proxy variable, and the critical values for different VAR dimensions, levels of asymptotic bias, and levels of statistical significance are provided. An important feature of this F statistic is that its asymptotic distribution does not depend on parameters that need to be estimated.

Download Full text
Cite this item
Kurt Graden Lunsford, Identifying Structural VARs with a Proxy Variable and a Test for a Weak Proxy, Federal Reserve Bank of Cleveland, Working Papers (Old Series) 1528, 04 Dec 2015.
More from this series
JEL Classification:
Subject headings:
Keywords: F Statistic; Productivity Shocks; Proxy Variable; Structural Vector Autoregression; TFP; Weak IV
For corrections, contact 4D Library ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal