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Forecast Error Variance Decompositions with Local Projections

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  • Yuriy Gorodnichenko
  • Byoungchan Lee

Abstract

We propose and study properties of an estimator of the forecast error variance decomposition in the local projections framework. We find for empirically relevant sample sizes that, after being bias-corrected with bootstrap, our estimator performs well in simulations. We also illustrate the workings of our estimator empirically for monetary policy and productivity shocks. KEYWORDS: Forecast error variance decomposition; Local projections.

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  • Yuriy Gorodnichenko & Byoungchan Lee, 2020. "Forecast Error Variance Decompositions with Local Projections," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 38(4), pages 921-933, October.
    • Handle: RePEc:taf:jnlbes:v:38:y:2020:i:4:p:921-933
    DOI: 10.1080/07350015.2019.1610661
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