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Impulse response estimation via fexible local projections

Author

Listed:
  • Haroon Mumtaz

    (Queen Mary University London)

  • Michele Piffer

    (King's College London)

Abstract

This paper introduces a exible local projection that generalises the model by Jordá (2005) to a non-parametric setting using Bayesian Additive Regression Trees. Monte Carlo experiments show that our BART-LP model is able to capture non-linearities in the impulse responses. Our first application shows that the fiscal multiplier is stronger in recession than expansion only in response to contractionary fiscal shocks, but not in response to expansionary fiscal shocks. We then show that financial shocks generate effects on the economy that increase more than proportionately in the size of the shock when the shock is negative, but not when the shock is positive.

Suggested Citation

  • Haroon Mumtaz & Michele Piffer, 2022. "Impulse response estimation via fexible local projections," Working Papers 938, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:938
    as

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    File URL: https://www.qmul.ac.uk/sef/media/econ/research/workingpapers/2022/wp938_compressed.pdf
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    References listed on IDEAS

    as
    1. Gordon, Robert J. & Krenn, Robert, 2010. "The End of the Great Depression 1939-41: Policy Contributions and Fiscal Multipliers," CEPR Discussion Papers 8034, C.E.P.R. Discussion Papers.
    2. Castelnuovo, Efrem & Pellegrino, Giovanni, 2018. "Uncertainty-dependent effects of monetary policy shocks: A new-Keynesian interpretation," Journal of Economic Dynamics and Control, Elsevier, vol. 93(C), pages 277-296.
    3. Robert J. Gordon & Robert Krenn, 2010. "The End of the Great Depression 1939-41: Policy Contributions and Fiscal Multipliers," NBER Working Papers 16380, National Bureau of Economic Research, Inc.
    4. James H. Stock & Mark W. Watson, 2018. "Identification and Estimation of Dynamic Causal Effects in Macroeconomics Using External Instruments," Economic Journal, Royal Economic Society, vol. 128(610), pages 917-948, May.
    5. Regis Barnichon & Christian Brownlees, 2019. "Impulse Response Estimation by Smooth Local Projections," The Review of Economics and Statistics, MIT Press, vol. 101(3), pages 522-530, July.
    6. Lutz Kilian & Yun Jung Kim, 2011. "How Reliable Are Local Projection Estimators of Impulse Responses?," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1460-1466, November.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Velasco, Sofia, 2024. "Asymmetries in the transmission of monetary policy shocks over the business cycle: a Bayesian Quantile Factor Augmented VAR," Working Paper Series 2983, European Central Bank.

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    More about this item

    Keywords

    Non-linear models; non-parametric techniques; identification;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • 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
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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