The key to Pedroni (2013) estimation and identification method will be the assumption that structural shocks can be decomposed into both common and idiosyncratic structural shocks, which are mutually orthogonal. In this blog, we describe the econometric estimation and implementation of the Panel SVAR of Pedroni (2013). Therefore, some researchers want to implement a panel SVARs to evaluate certain exogeneity assumptions or to test the small open economy assumption, often made in the international economics literature. Researcher may also be interested in knowing whether inflation dynamics in states may depend on political, geographical, cultural or institutional features, or on whether monetary and fiscal interactions are related.Īlternative potential use of panel SVARs is in studying the importance of interdependencies, and in checking whether reactions are generalized or only involve certain pairs of units. For example, researcher may analyze if monetary policy is more countercyclical, on average, in countries or states. Panel SVARs have also been often used to estimate average effects – possibly across heterogeneous groups of units - and to describe unit specific differences relative to the average. interest rate shocks are propagated to 10 European economies, 7 in the Euro area and 3 outside of it, and how German shocks are transmitted to the remaining nine economies. Panel SVARs are particularly suitable to analyze the transmission of idiosyncratic shocks across units and time. Panel SVARs have been used to address a variety of issues of interest to policymakers and applied economists. Author and guest blog by Davaajargal Luvsannyam