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Reducing Confidence Bands for Simulated Impulse Responses

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  • Helmut Lütkepohl

Abstract

It 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.

Suggested Citation

  • Helmut Lütkepohl, 2012. "Reducing Confidence Bands for Simulated Impulse Responses," Discussion Papers of DIW Berlin 1235, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1235
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    Cited by:

    1. Netsunajev, Aleksei, 2013. "Reaction to technology shocks in Markov-switching structural VARs: Identification via heteroskedasticity," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 51-62.
    2. Anna Staszewska-Bystrova & Peter Winker, 2016. "Improved bootstrap prediction intervals for SETAR models," Statistical Papers, Springer, vol. 57(1), pages 89-98, March.

    More about this item

    Keywords

    Vector autoregressive process; impulse responses; bootstrap; Bayesian estimation;

    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; State Space Models

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