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Discussion of "Dynamic Causal Effects in a Nonlinear World: the Good, the Bad, and the Ugly''

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Abstract

This comment discusses Kolesár and Plagborg-Møller's (2025) finding that the standard linear local projection (LP) estimator recovers the average marginal effect (AME) even in nonlinear settings. We apply and discuss a subset their results using a simple nonlinear time series model, emphasizing the role of the weighting function and the impact of nonlinearities on small-sample properties.

Suggested Citation

  • Edward P. Herbst & Benjamin K. Johannsen, 2025. "Discussion of "Dynamic Causal Effects in a Nonlinear World: the Good, the Bad, and the Ugly''," Finance and Economics Discussion Series 2025-058, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2025-58
    DOI: 10.17016/FEDS.2025.058
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    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
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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