Inference in Bayesian Proxy-SVARs
Jonas E. Arias, Juan F. Rubio-Ramírez, and Daniel F. Waggoner
Working Paper 2018-16a
December 2018 (Revised January 2021)
Motivated by the increasing use of external instruments to identify structural vector autoregressions (SVARs), we develop an algorithm for exact finite sample inference in this class of time series models, commonly known as Proxy-SVARs. Our algorithm makes independent draws from any posterior distribution over the structural parameterization of a Proxy-SVAR. Our approach allows researchers to simultaneously use proxies and traditional zero and sign restrictions to identify structural shocks. We illustrate our methods with two applications. In particular, we show how to generalize the counterfactual analysis in Mertens and Montiel-Olea (2018) to identified structural shocks.
JEL classification: C15, C32
Key words: SVARs, external instruments, importance sampler