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Title: About local projection impulse response function reliability
Authors: Brugnolini, Luca
Keywords: Autoregression (Statistics)
Monte Carlo method
Time-series analysis
Econometric models
Issue Date: 2018
Publisher: CEIS Tor Vergata
Citation: Brugnolini, L. (2018). About local projection impulse response function reliability. CEIS Tor Vergata University, CEIS, 16(6), No. 440.
Abstract: I compare the performance of the vector autoregressive (VAR) model impulse response function estimator with the Jorda (2005) local projection (LP) methodology. In a Monte Carlo experiment, I demonstrate that when the data generating process is a well-specified VAR, the standard impulse response function estimator is the best option. However, when the sample size is small, and the model lag-length is misspecified, I prove that the local projection estimator is a competitive alternative. Finally, I show how to improve the local projection performance by fixing the lag-length at each horizon.
ISSN: 2610931X
Appears in Collections:2018

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