Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/312131 
Year of Publication: 
2025
Series/Report no.: 
DIW Discussion Papers No. 2108
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
In conventional proxy VAR analysis, the shocks of interest are identified by external instruments. This is typically accomplished by considering the covariance of the instruments and the reduced-form residuals. Alternatively, the instruments may be internalized by augmenting the VAR process by the instruments or proxies. These alternative identification methods are compared and it is shown that the resulting shocks obtained with the alternative approaches differ in general. Conditions are provided under which their impulse responses are nevertheless identical. If the conditions are satisfied, identification of the shocks is ensured without further assumptions. Empirical examples illustrate the results and the virtue of using the identification conditions derived in this study.
Subjects: 
Structural vector autoregression
proxy VAR
augmented VAR
fundamental shocks
invertible VAR
JEL: 
C32
Document Type: 
Working Paper

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