Quantitative Economics
Journal Of The Econometric Society
Edited by: Stéphane Bonhomme • Print ISSN: 1759-7323 • Online ISSN: 1759-7331
Edited by: Stéphane Bonhomme • Print ISSN: 1759-7323 • Online ISSN: 1759-7331
Quantitative Economics: Jan, 2023, Volume 14, Issue 1
https://doi.org/10.3982/QE1511
p. 161-200
Thore Schlaak, Malte Rieth, Maximilian Podstawski
We develop a structural vector autoregressive framework that combines external instruments and heteroskedasticity for identification of monetary policy shocks. We show that exploiting both types of information sharpens structural inference, allows testing the relevance and exogeneity condition for instruments separately using likelihood ratio tests, and facilitates the economic interpretation of the structural shock of interest. We test alternative instruments and find that narrative and model‐based measures are valid, while high‐frequency data instruments show signs of invalidity. Finally, we document that monetary shocks identified with both a valid instrument and heteroskedasticity have larger effects on production and prices than monetary shocks identified via an instrument only.
Thore Schlaak, Malte Rieth, and Maximilian Podstawski