| 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. |