InternalInstrument

InternalInstrument <: AbstractIdentificationMethod

Identification method using internal instruments within a VAR framework.

This method estimates relative structural impulse response functions (IRFs) using an internal instrument—i.e., a variable within the system that is assumed to proxy for a structural shock of interest. The IRFs are normalised such that the response of a designated normalising variable equals one at a specific horizon.

This approach is based on:

Plagborg-Møller, M., & Wolf, C. K. (2021). Local Projections and VARs Estimate the Same Impulse Responses. Econometrica, 89(2), 955–980. https://doi.org/10.3982/ecta17813

Fields

  • instrument::Union{Symbol, Int}: the variable to be used as the instrument
  • normalising_variable::Union{Symbol, Int}: the variable used to normalise the IRF
  • normalising_horizon::Int: the horizon at which the IRF of the normalising variable is set to one
InternalInstrument(normalising_variable::Union{Symbol, Int};
                   instrument::Union{Symbol, Int}=1,
                   normalising_horizon::Int=0)

Constructs an InternalInstrument identification method with the given normalising variable, optional instrument (default is the first variable), and normalisation horizon (default is 0).