Identification, estimation and inference in Panel Vector Autoregressions using external instruments
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arXiv
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| Format: | Preprint |
| Published: |
2025
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| _version_ | 1866908672082313216 |
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| author | Pala, Raimondo |
| author_facet | Pala, Raimondo |
| contents | This paper proposes an identification inspired from the SVAR-IV literature that uses external instruments to identify PVARs, and discusses associated issues of identification, estimation, and inference.
I introduce a form of local average treatment effect - the $μ$-LATE - which arises when a continuous instrument targets a binary treatment. Under standard assumptions of independence, exclusion, and monotonicity, I show that externally instrumented PVARs estimate the $μ$-LATE. Monte Carlo simulations illustrate that confidence sets based on the Anderson-Rubin statistics deliver reliable convergence for impulse responses.
As an application, I instrument state-level military spending with the state's share of national spending to estimate the dynamic fiscal multiplier. I find multipliers above unity, with effects concentrated in the contemporaneous year and persisting into the following year. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2511_19372 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Identification, estimation and inference in Panel Vector Autoregressions using external instruments Pala, Raimondo Econometrics This paper proposes an identification inspired from the SVAR-IV literature that uses external instruments to identify PVARs, and discusses associated issues of identification, estimation, and inference. I introduce a form of local average treatment effect - the $μ$-LATE - which arises when a continuous instrument targets a binary treatment. Under standard assumptions of independence, exclusion, and monotonicity, I show that externally instrumented PVARs estimate the $μ$-LATE. Monte Carlo simulations illustrate that confidence sets based on the Anderson-Rubin statistics deliver reliable convergence for impulse responses. As an application, I instrument state-level military spending with the state's share of national spending to estimate the dynamic fiscal multiplier. I find multipliers above unity, with effects concentrated in the contemporaneous year and persisting into the following year. |
| title | Identification, estimation and inference in Panel Vector Autoregressions using external instruments |
| topic | Econometrics |
| url | https://arxiv.org/abs/2511.19372 |