Wild inference for wild SVARs with application to volatility-based IV

Abstract

We propose a dependent wild bootstrap method based on local projections for computing the joint asymptotic distribution of parameter estimates in structural vector autoregression models. This procedure can be applied to the raw data in levels without pretesting while remaining robust to unit roots, cointegration, polynomial trends, and conditionally heteroscedastic shocks in a general form. We show how knowledge of the joint asymptotic distribution in persistent data setups can improve the efficiency of impulse response function estimators through smoothing, narrow multi-horizon confidence bounds, and deliver weak identification robust inference using external moments. We illustrate these findings in simulations and apply the method to US monetary policy shocks identified by FOMC-meeting-induced volatility.