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Working Paper
Identifying Structural VARs with a Proxy Variable and a Test for a Weak Proxy
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 ...
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Robust inference in models identified via heteroskedasticity
Identification via heteroskedasticity exploits differences in variances across regimes to identify parameters in simultaneous equations. I study weak identification in such models, which arises when variances change very little or the variances of multiple shocks change close to proportionally. I show that this causes standard inference to become unreliable, outline two tests to detect weak identification, and establish conditions for the validity of nonconservative methods for robust inference on an empirically relevant subset of the parameter vector. I apply these tools to monetary policy ...
Working Paper
Understanding the Estimation of Oil Demand and Oil Supply Elasticities
This paper examines the advantages and drawbacks of alternative methods of estimating oil supply and oil demand elasticities and of incorporating this information into structural VAR models. I not only summarize the state of the literature, but also draw attention to a number of econometric problems that have been overlooked in this literature. Once these problems are recognized, seemingly conflicting conclusions in the recent literature can be resolved. My analysis reaffirms the conclusion that the one-month oil supply elasticity is close to zero, which implies that oil demand shocks are the ...
Working Paper
Interest Rate Surprises: A Tale of Two Shocks
Interest rate surprises around FOMC announcements reveal both the surprise in the monetary policy stance (the pure policy shock) and interest rate movements driven by exogenous information about the economy from the central bank (the information shock). In order to disentangle the effects of these two shocks, we use interest rate changes on days of macroeconomic data releases. On these release dates, there are no pure policy shocks, which allows us to identify the impact of information shocks and thereby distill pure policy shocks from interest rate surprises around FOMC announcements. Our ...
Working Paper
A Robust Test for Weak Instruments with Multiple Endogenous Regressors
We generalize the popular bias-based test of Stock and Yogo (2005) for instrument strength in two-stage least-squares models with multiple endogenous regressors to be robust to heteroskedasticity and autocorrelation. Equivalently, we extend the robust test of Montiel Olea and Pflueger (2013) for a single endogenous regressor to the general case with multiple endogenous regressors. We describe a simple procedure for applied researchers to conduct our generalized first-stage test of instrument strength, and provide fast Matlab code for its implementation. In simulations, our test controls size ...
Working Paper
Reconstruction Multipliers
Following the 2009 L'Aquila earthquake, financing of reconstruction by the Italian central government resulted in a sharp and unanticipated discontinuity in grants across municipalities that were ex-ante very similar. Using the emergency financing law as an instrument, we identify the causal effect of municipal government spending on local activity, controlling for the negative supply shock from the earthquake. In our estimates, this "reconstruction multiplier" is around unity, and we show that the grants provided public insurance. Economic activity contracted in municipalities that did not ...
Working Paper
Dynamic Identification Using System Projections on Instrumental Variables
We propose System Projections on Instrumental Variables (SP-IV) to estimate structural relationships using regressions of structural impulse responses obtained from local projections or vector autoregressions. Relative to IV with distributed lags of shocks as instruments, SP-IV imposes weaker exogeneity requirements and can improve efficiency and increase effective instrument strength relative to the typical 2SLS estimator. We describe inference under strong and weak identification. The SP-IV estimator outperforms other estimators of Phillips Curve parameters in simulations. We estimate the ...
Working Paper
Dynamic Identification Using System Projections and Instrumental Variables
We propose System Projections with Instrumental Variables (SP-IV) to estimate dynamic structural relationships. SP-IV replaces lag sequences of instruments in traditional IV with lead sequences of endogenous variables. SP-IV allows the inclusion of controls to weaken exogeneity requirements, can be more efficient than IV with lags, and allows identification over many time horizons without creating many-weak-instruments problems. SP-IV also enables the estimation of structural relationships across impulse responses obtained from local projections or vector autoregressions. We provide a ...
Working Paper
Evidence on the Production of Cognitive Achievement from Moving to Opportunity
This paper performs a subgroup analysis on the effect of receiving a Moving to Opportunity (MTO) housing voucher on test scores. I find evidence of heterogeneity by number of children in the household in Boston, gender in Chicago, and race/ethnicity in Los Angeles. To study the mechanisms driving voucher effect heterogeneity, I develop a generalized Rubin Causal Model and propose an estimator to identify transition-specific Local Average Treatment Effects (LATEs) of school and neighborhood quality. Although I cannot identify such LATEs with the MTO data, the analysis demonstrates that ...
Working Paper
The Econometrics of Oil Market VAR Models
Oil market VAR models have become the standard tool for understanding the evolution of the real price of oil and its impact in the macro economy. As this literature has expanded at a rapid pace, it has become increasingly difficult for mainstream economists to understand the differences between alternative oil market models, let alone the basis for the sometimes divergent conclusions reached in the literature. The purpose of this survey is to provide a guide to this literature. Our focus is on the econometric foundations of the analysis of oil market models with special attention to the ...