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Local Linear Impulse Responses for a Small Open Economy

Listed author(s):
  • Alfred A. Haug
  • Christie Smith

Traditional vector autoregressions derive impulse responses using iterative techniques that may compound specification errors. Local projection techniques are robust to this problem, and Monte Carlo evidence suggests they provide reliable estimates of the true impulse responses. We use local linear projections to investigate the dynamic properties of a model for a small open economy, New Zealand. We compare impulse responses from local projections to those from standard techniques, and consider the implications for monetary policy. We pay careful attention to the dimensionality of the model, and focus on effects of policy on GDP, interest rates, prices and exchange rates.

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File URL: http://hdl.handle.net/10.1111/j.1468-0084.2011.00643.x
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Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.

Volume (Year): 74 (2012)
Issue (Month): 3 (06)
Pages: 470-492

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Handle: RePEc:bla:obuest:v:74:y:2012:i:3:p:470-492
DOI: j.1468-0084.2011.00643.x
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