Joint Inference and Counterfactual experimentation for Impulse Response Functions by Local Projections
AbstractThis paper provides three measures of the uncertainty associated to an impulse response path: (1) conditional confidence bands which isolate the uncertainty of individual response coefficients given the temporal path experienced up to that point; (2) response percentile bounds} which provide bounds on the universe of permissible paths at a given probability level; and (3) Wald tests of joint significance and joint cumulative significance. These results rely on general assumptions for the joint distribution of the system's impulse responses. Given this distribution, the paper then shows how to construct counterfactual experiments formally; provides a test on the likelihood of observing the counterfactual; and derives the distribution of the system's responses conditional on the counterfactual. The paper then derives the asymptotic joint distribution of structural impulse responses identified by either short- or long-run recursive assumptions and estimated by local projections (Jorda, 2005). An application to a two country system implements all of these new methods.
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Bibliographic InfoPaper provided by University of California, Davis, Department of Economics in its series Working Papers with number 624.
Date of creation: 15 Feb 2007
Date of revision:
impulse response; local projection; conditional confidence bands; counterfactual;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
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