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Small-sample confidence intervals for multivariate impulse response functions at long horizons

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Author Info
Barbara Rossi (Department of Economics, Duke University, Durham, North Carolina, USA)
Elena Pesavento (Department of Economics, Emory University, Atlanta, Georgia, USA)

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Abstract

Existing methods for constructing confidence bands for multivariate impulse response functions may have poor coverage at long lead times when variables are highly persistent. The goal of this paper is to propose a simple method that is not pointwise and that is robust to the presence of highly persistent processes. We use approximations based on local-to-unity asymptotic theory, and allow the horizon to be a fixed fraction of the sample size. We show that our method has better coverage properties at long horizons than existing methods, and may provide different economic conclusions in empirical applications. We also propose a modification of this method which has good coverage properties at both short and long horizons. Copyright © 2006 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.894
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File URL: http://qed.econ.queensu.ca:80/jae/2006-v21.8/
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 21 (2006)
Issue (Month): 8 ()
Pages: 1135-1155
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Handle: RePEc:jae:japmet:v:21:y:2006:i:8:p:1135-1155

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Stock, James H., 1991. "Confidence intervals for the largest autoregressive root in U.S. macroeconomic time series," Journal of Monetary Economics, Elsevier, vol. 28(3), pages 435-459, December. [Downloadable!] (restricted)
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  2. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January. [Downloadable!] (restricted)
  3. Elliott, Graham & Jansson, Michael, 2003. "Testing for unit roots with stationary covariates," Journal of Econometrics, Elsevier, vol. 115(1), pages 75-89, July. [Downloadable!] (restricted)
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  4. Clarida, Richard & Galí, Jordi, 1994. "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?," CEPR Discussion Papers 951, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Kilian, Lutz, 2001. "Impulse Response Analysis in Vector Autoregressions with Unknown Lag Order," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 20(3), pages 161-79, April.
  6. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July. [Downloadable!] (restricted)
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  7. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
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  8. M. Hashem Pesaran & Til Schuermann & Scott M. Weiner, 2002. "Modeling Regional Interdependencies Using a Global Error-Correcting Macroeconometric Model," Center for Financial Institutions Working Papers 01-38, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
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  9. Nikolay Gospodinov, 2004. "Asymptotic confidence intervals for impulse responses of near-integrated processes," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 505-527, December. [Downloadable!] (restricted)
  10. Lutz Kilian, 1998. "Confidence intervals for impulse responses under departures from normality," Econometric Reviews, Taylor and Francis Journals, vol. 17(1), pages 1-29. [Downloadable!] (restricted)
  11. repec:bep:sndecm:9:2005:1:1219-1219 is not listed on IDEAS
  12. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Juan F. Rubio-Ramírez & Daniel F.Waggoner & Tao Zha, 2008. "Structural vector autoregressions: theory of identification and algorithms for inference," Working Paper 2008-18, Federal Reserve Bank of Atlanta. [Downloadable!]
  2. Elena Pesavento, 2006. "Near-Optimal Unit Root Tests with Stationary Covariates with Better Finite Sample Size," Economics Working Papers ECO2006/18, European University Institute. [Downloadable!]
    Other versions:
  3. Elena Pesavento & Barbara Rossi, 2003. "Do Technology Shocks Drive Hours Up or Down? A Little Evidence From an Agnostic Procedure," Emory Economics 0326, Department of Economics, Emory University (Atlanta). [Downloadable!]
    Other versions:
  4. Kilian, Lutz & Kim, Yun Jung, 2009. "Do Local Projections Solve the Bias Problem in Impulse Response Inference?," CEPR Discussion Papers 7266, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Barbara Rossi & Elena Pesavento, 2004. "Do Technology Shocks Drive Hours Up or Down?," Econometric Society 2004 North American Summer Meetings 96, Econometric Society. [Downloadable!]
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