[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"doc-seo-455661-105":3,"detail-sidebar-cat-0-en-105":81,"doc-detail-455661-en":130},{"code":4,"msg":5,"data":6},0,"ok",{"site_id":7,"language":8,"slug":9,"title":10,"keywords":11,"description":12,"schema_data":13,"social_meta":74,"head_meta":76,"extra_data":78,"updated_unix":80},105,"en","external-instrument-svar-analysis-for-noninvertible-shocks-no-1444","External Instrument SVAR Analysis for Noninvertible Shocks - No 1444","","Proposes a novel external-instrument SVAR-IV procedure to identify and estimate impulse response functions even when the target shock is not invertible or not recoverable. For recoverable shocks, it also derives the unit-variance shock and corresponding absolute response functions; for invertible shocks, it reduces to the standard proxy-SVAR method. Provides tests for recoverability and invertibility, and applies the framework to a monetary policy VAR, finding the monetary policy shock is recoverable but not invertible under standard specifications. Results remain plausible in parsimonious models without financial variables.",{"@graph":14,"@context":73},[15,34,56],{"@type":16,"itemListElement":17},"BreadcrumbList",[18,23,27,31],{"item":19,"name":20,"@type":21,"position":22},"https://docshare.wps.com","Home","ListItem",1,{"item":24,"name":25,"@type":21,"position":26},"https://docshare.wps.com/document/","Document",2,{"item":28,"name":29,"@type":21,"position":30},"https://docshare.wps.com/document/research-report/","Research & Report",3,{"item":32,"name":10,"@type":21,"position":33},"https://docshare.wps.com/document/external-instrument-svar-analysis-for-noninvertible-shocks-no-1444/455661/",4,{"url":32,"name":10,"@type":35,"image":36,"author":41,"headline":10,"publisher":44,"fileFormat":47,"inLanguage":8,"description":12,"dateModified":48,"datePublished":49,"encodingFormat":47,"isAccessibleForFree":50,"interactionStatistic":51},"DigitalDocument",{"url":37,"@type":38,"width":39,"height":40},"https://docshare.wps.com/thumbnails/external-instrument-svar-analysis-for-noninvertible-shocks-no-1444/455661.png","ImageObject",300,407,{"name":42,"@type":43},"Đào","Person",{"url":19,"name":45,"@type":46},"DocShare","Organization","application/pdf","2026-10-08","2026-09-30",true,{"@type":52,"interactionType":53,"userInteractionCount":55},"InteractionCounter",{"@type":54},"ViewAction",7,{"@type":57,"mainEntity":58},"FAQPage",[59,65,69],{"name":60,"@type":61,"acceptedAnswer":62},"What is the key contribution of the proposed external-instrument SVAR procedure?","Question",{"text":63,"@type":64},"It identifies and estimates impulse response functions regardless of whether the shock is invertible or recoverable, using an external proxy without requiring invertibility.","Answer",{"name":66,"@type":61,"acceptedAnswer":67},"How does the method handle recoverable vs. invertible shocks?",{"text":68,"@type":64},"If the shock is recoverable, it estimates the unit-variance shock and absolute response functions; if the shock is invertible, the procedure collapses to the standard proxy-SVAR approach.",{"name":70,"@type":61,"acceptedAnswer":71},"How are recoverability and invertibility tested in the paper?",{"text":72,"@type":64},"Recoverability is tested using serial uncorrelation of the fitted values from regressing the proxy on present and future VAR residuals; invertibility is tested via whether the shock can be expressed as a linear combination of current VAR residuals only.","https://schema.org",{"og:url":32,"og:type":75,"og:title":10,"og:site_name":45,"og:description":12},"article",{"robots":77,"canonical":32},"index,follow",{"doc_id":79,"site_id":7},455661,1790974156,{"code":4,"msg":82,"data":83},"success",[84,88,92,96,101,106,110,114,119,122,126],{"id":22,"doc_module":4,"doc_module_name":25,"category_name":85,"show_sort_weight":86,"slug":87},"Story & Novel",90,"story-novel",{"id":26,"doc_module":4,"doc_module_name":25,"category_name":89,"show_sort_weight":90,"slug":91},"Literature",80,"literature",{"id":33,"doc_module":4,"doc_module_name":25,"category_name":93,"show_sort_weight":94,"slug":95},"Exam",70,"exam",{"id":97,"doc_module":4,"doc_module_name":25,"category_name":98,"show_sort_weight":99,"slug":100},5,"Comic",60,"comic",{"id":102,"doc_module":4,"doc_module_name":25,"category_name":103,"show_sort_weight":104,"slug":105},6,"Technology",50,"technology",{"id":55,"doc_module":4,"doc_module_name":25,"category_name":107,"show_sort_weight":108,"slug":109},"Healthcare",40,"healthcare",{"id":111,"doc_module":4,"doc_module_name":25,"category_name":29,"show_sort_weight":112,"slug":113},8,30,"research-report",{"id":115,"doc_module":4,"doc_module_name":25,"category_name":116,"show_sort_weight":117,"slug":118},9,"Religion & Spirituality",20,"religion-spirituality",{"id":117,"doc_module":4,"doc_module_name":25,"category_name":120,"show_sort_weight":117,"slug":121},"World Cup","world-cup",{"id":123,"doc_module":4,"doc_module_name":25,"category_name":124,"show_sort_weight":123,"slug":125},10,"Lifestyle","lifestyle",{"id":127,"doc_module":4,"doc_module_name":25,"category_name":128,"show_sort_weight":97,"slug":129},19,"General","general",{"code":4,"msg":82,"data":131},{"doc_id":79,"user_id":132,"nickname":42,"user_avatar":133,"doc_module":4,"category_id":111,"category_name":29,"doc_title":10,"doc_description":12,"doc_content":134,"file_id":135,"file_url":136,"file_type":137,"file_size":138,"view_count":55,"is_deleted":4,"is_public":22,"is_downloadable":22,"audit_status":22,"page_count":139,"language":140,"language_code":8,"site_id":7,"html_lang":8,"table_of_contents":141,"faqs":142,"seo_title":143,"seo_description":12,"update_tm":144,"read_time":145},1374402968488,"https://ap-avatar.wpscdn.com/davatar_29158cc5080c5b710cf443261637dec0","External Instrument SVAR Analysis for Noninvertible Shocks  \nMario Forni, Luca Gambetti and Giovanni Ricco  \nDecember 2022 No: 1444  \nWarwick Economics Research Papers  \nISSN 2059-4283 (online)  \nISSN 0083-7350 (print)  \nExternal Instrument SVAR Analysis for Noninvertible Shocks  \nMario Forni 1 , Luca Gambetti2 , and Giovanni Ricco3  \n1 Università di Modena e Reggio Emilia, CEPR and RECent  \n2 Universitat Autònoma de Barcelona, BSE, Università di Torino, CCA  \n3 University of Warwick, OFCE-SciencesPo, and CEPR  \n20th December 2022  \nAbstract  \nWe propose a novel external-instrument SVAR procedure to identify and estimate the impulse response functions, regardless of the shock being invertible or recoverable. When the shock is recoverable, we also show how to estimate the unit variance shock and the `absolute' response functions. When the shock is invertible, the method collapses to the standard proxy-SVAR procedure. We show how to test for recoverability and invertibility. We apply our techniques to a monetary policy VAR. It turns out that, using standard specifications, the monetary policy shock is not invertible, but is recoverable.  \nWhen using our procedure, results are plausible even in a parsimonious specification, not including financial variables. Monetary policy has significant and sizeable effects on prices.  \nJEL classification: C32, E32 .  \nKeywords: Proxy-SVAR, SVAR-IV, Impulse response functions, Variance Decomposition, Historical Decomposition, Monetary Policy Shock.  \nLuca Gambetti acknowledges the financial support from the Spanish Ministry of Science and Innovation, through the Severo Ochoa Programme for Centres of Excellence in R&D (CEX2019-000915-S), the financial support from the Spanish Ministry of Science, Innovation and Universities and FEDER through grant PGC2018-094364-B-I00 and the BSE Research Network.  \n1 Introduction  \nSince the seminal contributions of Stock (2008), Mertens and Ravn (2013) and Stock and Watson (2018), Proxy-SVAR (or SVAR-IV) methods have become a popular approach to structural macroeconomic analysis. A very partial list of recent noticeable applications include Stock and Watson (2012), Mertens and Ravn (2014), Gertler and Karadi (2015), Mertens and Montiel-Olea (2018), Paul (2020) and Miranda-Agrippino and Ricco (2021) .  \nA severe limitation of the method is that it requires invertibility (Stock and Watson, 2018 , Miranda-Agrippino and Ricco, forthcoming) .1 A shock is invertible if it is a linear combination of the present and past values of the VAR variables, i.e. a contemporaneous linear combination of the VAR residuals.  \nInvertibility is a demanding property, often unlikely to be satisfied by commonly adopted VAR specifications. In fact, several works have argued that it is hardly valid in the presence of `news' technology shocks (Forni et al. , 2014), forward guidance (Ramey, 2016) or fiscal foresight (Mertens and Ravn, 2010 , Ramey, 2011 , Leeper et al. , 2013), and necessarily fails for the so-called `noise' shocks (Blanchard et al. , 2013 , Forni et al. , 2017) . The problem is that current values of the macroeconomic variables do not convey enough information to recover the shock. Here we show that invertibility does not hold for a few standard monetary-policy VAR specifications.  \nIn this paper we propose a simple SVAR procedure with an external proxy which does not require invertibility. Instead of regressing the VAR residuals onto the current proxy only – what we name `the standard procedure' – we regress the VAR residuals onto the current proxy and its lags. The impulse response functions are then estimated by combining the coefficients of this regression with the reduced-form impulse response functions obtained from the VAR. As for variance decomposition, we show how to implement the upper and lower bounds of Plagborg-Møller and Wolf (2022) within our setting. While the `relative' impulse-response functions can be always estimated, the `absolute' response functions and the stru","cbCaikWpKghSLXOI","https://ap.wps.com/l/cbCaikWpKghSLXOI","pdf",1855358,46,"English","# Abstract\n# Keywords\n# 1 Introduction\n## Limitations of proxy-SVAR and invertibility requirement\n## Proposed external-proxy SVAR procedure without invertibility\n## Recoverability concept and testing strategy\n## Applications: monetary policy VAR and implications","[{\"question\":\"What is the key contribution of the proposed external-instrument SVAR procedure?\",\"answer\":\"It identifies and estimates impulse response functions regardless of whether the shock is invertible or recoverable, using an external proxy without requiring invertibility.\"},{\"question\":\"How does the method handle recoverable vs. invertible shocks?\",\"answer\":\"If the shock is recoverable, it estimates the unit-variance shock and absolute response functions; if the shock is invertible, the procedure collapses to the standard proxy-SVAR approach.\"},{\"question\":\"How are recoverability and invertibility tested in the paper?\",\"answer\":\"Recoverability is tested using serial uncorrelation of the fitted values from regressing the proxy on present and future VAR residuals; invertibility is tested via whether the shock can be expressed as a linear combination of current VAR residuals only.\"}]","External Instrument SVAR Analysis for Noninvertible Shocks - No 1444 | PDF",1790743796,116]