Instrumental Variable Estimation of Structural Var Models Robust to Possible Nonstationarity

This paper considers the estimation of dynamic causal effects using proxy structural vector-autoregressive (proxy SAVR) model with possibly non-stationary regressors. We provide general conditions under which the asymptotic normal approximation remains valid. In this case, the asymptotic variance depends on the persistence property of each series. We further provide a consistent asymptotic covariance matrix estimator that requires neither such knowledge nor pre-tests for nonstationarity. The proposed consistent covariance matrix estimator is robust and is easy to implement in practice. When all regressors are indeed stationary, the method becomes the same as the standard procedure.