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Econometrics 2013, 1(2), 180-206; doi:10.3390/econometrics1020180

Structural Panel VARs

Department of Economics, Schapiro Hall, 124 Hopkins Hall Dr., Williams College, Williamstown, MA 01267, USA
Received: 30 May 2013 / Revised: 6 August 2013 / Accepted: 20 August 2013 / Published: 24 September 2013
(This article belongs to the Special Issue Panel Time Series Methods)
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Abstract

The paper proposes a structural approach to VAR analysis in panels, which takes into account responses to both idiosyncratic and common structural shocks, while permitting full cross member heterogeneity of the response dynamics. In the context of this structural approach, estimation of the loading matrices for the decomposition into idiosyncratic versus common shocks is straightforward and transparent. The method appears to do remarkably well at uncovering the properties of the sample distribution of the underlying structural dynamics, even when the panels are relatively short, as illustrated in Monte Carlo simulations. Finally, these simulations also illustrate that the SVAR panel method can be used to improve inference, not only for properties of the sample distribution, but also for dynamics of individual members of the panel that lack adequate data for a conventional time series SVAR analysis. This is accomplished by using fitted cross sectional regressions of the sample of estimated panel responses to correlated static measures, and using these to interpolate the member-specific dynamics. View Full-Text
Keywords: panel time series; structural VAR; panel VARs panel time series; structural VAR; panel VARs
This is an open access article distributed under the Creative Commons Attribution License (CC BY 3.0).

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Pedroni, P. Structural Panel VARs. Econometrics 2013, 1, 180-206.

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