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“Identification in (Endogenously) Nonlinear SVARs Is Easier Than You Think”

With the Lunch Seminar series, the Department of Finance is bringing eminent and up-and-coming researchers from around the world to Luxembourg.

Abstract

We study identification in structural vector autoregressions (SVARs) in which the endogenous variables enter nonlinearly on the left-hand side of the model, a feature we term endogenous nonlinearity, to distinguish it from the more familiar case in which nonlinearity arises only through exogenous or predetermined variables. This class of models accommodates asymmetric impact multipliers, endogenous regime switching, and occasionally binding constraints. We show that, under weak regularity conditions, the model parameters and structural shocks are (nonparametrically) identified up to an orthogonal transformation, exactly as in a linear SVAR. Our results have the powerful implication that most existing identification schemes for linear SVARs extend directly to our nonlinear setting, with the number of restrictions required to achieve exact identification remaining unchanged. We specialise our results to piecewise affine SVARs, which provide a convenient framework for the modelling of endogenous regime switching, and their smooth transition counterparts. We illustrate our methodology with an application to the nonlinear Phillips curve, providing a test for the presence of nonlinearity that is robust to the choice of identifying assumptions, and finding significant evidence for state-dependent inflation dynamics.

ÌÇÐÄVlog the speaker

‘s research is in macroeconometrics, and he is especially concerned with the challenges for inference, and the opportunities for identification, created by strongly dependent time series. In particular, he has worked on: nonlinear generalisations of cointegration; nonparametric estimation and inference; and on the robustness of inferences to departures from exact unit roots (in SVARs). He is also interested in problems of identification and inference in structural macroeconomic models. His work has been published in the Annals of Statistics, the Journal of Econometrics, and Econometric Theory.

Language

English.

This is a free event. Registration is mandatory.

Cold lunches are provided to registered participants only.