Proxy SVARs : asymptotic theory, bootstrap inference, and the effects of income tax changes in the United States


Jentsch, Carsten ; Lunsford, Kurt G.


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URL: https://ub-madoc.bib.uni-mannheim.de/41052
URN: urn:nbn:de:bsz:180-madoc-410528
Document Type: Working paper
Year of publication: 2016
The title of a journal, publication series: Working Paper Series
Volume: 16-10
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > Statistik (Mammen)
MADOC publication series: Department of Economics > Working Paper Series
Subject: 330 Economics
Abstract: Proxy structural vector autoregressions (SVARs)identify structural shocks in vector autoregressions (VARs) with external proxy variables that are correlated with the structural shocks of interest but uncorrelated with other structural shocks. We provide asymptotic theory for proxy SVARs when the VAR innovations and proxy variables are jointly a-mixing. We also prove the asymptotic validity of a residual-based moving block bootstrap (MBB) for inference on statistics that depend jointly on estimators for the VAR coeffcients and for covariances of the VAR innovations and proxy variables. These statistics include structural impulse response functions (IRFs). Conversely, wild bootstraps are invalid, even when innovations and proxy variables are either independent and identically distributed or martingale difference sequences, and simulations show that their coverage rates for IRFs can be badly mis-sized. Using the MBB to re-estimate confidence intervals for the IRFs in Mertens and Ravn (2013), we show that inferences cannot be made about the effects of tax changes on output, labor, or investment.

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Jentsch, Carsten ; Lunsford, Kurt G. (2016) Proxy SVARs : asymptotic theory, bootstrap inference, and the effects of income tax changes in the United States. Open Access Working Paper Series Mannheim 16-10 [Working paper]
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