Calculating Joint Bands for Impulse Response Functions using Highest Density Regions

Peter Winker, Helmut Lütkepohl and Anna Staszewska-Bystrova

VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association

Abstract: This paper proposes a new non-parametric method of constructing joint confidence bands for impulse response functions of vector autoregressive models. The estimation uncertainty is captured by means of bootstrapping and the highest density region (HDR) approach is used to construct the bands. A Monte Carlo comparison of the HDR bands with existing alternatives shows that the former are competitive with the bootstrap-based Bonferroni and Wald confidence regions. The relative tightness of the HDR bands matched with their good coverage properties makes them attractive for applications. An application to corporate bond spreads for Germany highlights the potential for empirical work.

JEL-codes: C32 C53 C58 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-ecm
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc16:145537

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