Reducing Confidence Bands for Simulated Impulse Responses
AbstractIt is emphasized that the shocks in structural vector autoregressions are only identified up to sign and it is pointed out that this feature can result in very misleading confidence intervals for impulse responses if simulation methods such as Bayesian or bootstrap methods are used. The confidence intervals heavily depend on which variable is used for fixing the sign of the initial responses. In particular, when the shocks are identified via long-run restrictions the problem can be severe. It is pointed out that a suitable choice of variable for fixing the sign of the initial responses can result in substantial reductions in the confidence bands for impulse responses.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1235.
Length: 16 p.
Date of creation: 2012
Date of revision:
Publication status: Published in: Statistical Papers 54 (2013) Iss. 4, 1131-1145
Vector autoregressive process; impulse responses; bootstrap; Bayesian estimation;
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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-03 (All new papers)
- NEP-ECM-2012-09-03 (Econometrics)
- NEP-ETS-2012-09-03 (Econometric Time Series)
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