Impulse Response Functions for Self-Exciting Nonlinear Models

Neville Francis, Michael Owyang and Daniel Soques

No 2023-021, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We calculate impulse response functions from regime-switching models where the driving variable can respond to the shock. Our focus is on nonlinear vector autoregressions with a variety of specifications for the transition function used throughout the literature. Using Monte Carlo simulations with different misspecifications, we identify the conditions under which impulse response function estimates exhibit significant bias. Furthermore, we extend the concept of model-average impulse responses to this nonlinear context and demonstrate their robustness to model misspecification. Applying these methodologies to the empirical estimation of regime-dependent fiscal multipliers, we find that the multipliers are generally less than one, with small differences observed across varying states of economic slack.

Keywords: generalized impulse response functions; threshold models; regime switching models; model averaging (search for similar items in EconPapers)
JEL-codes: C22 C24 E62 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2023-08-29, Revised 2023-08-29
New Economics Papers: this item is included in nep-ecm and nep-ets
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Working Paper: Impulse Response Functions for Self-Exciting Nonlinear Models (2023)
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DOI: 10.20955/wp.2023.021

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