Local Projections

Oscar Jorda and Alan M. Taylor

No 2024-24, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: A central question in applied research is to estimate the effect of an exogenous intervention or shock on an outcome. The intervention can affect the outcome and controls on impact and over time. Moreover, there can be subsequent feedback between outcomes, controls and the intervention. Many of these interactions can be untangled using local projections. This method’s simplicity makes it a convenient and versatile tool in the empiricist’s kit, one that is generalizable to complex settings. This article reviews the state-of-the art for the practitioner, discusses best practices and possible extensions of local projections methods, along with their limitations.

Keywords: local projections; impulse response; multipliers; bias; inference; instrumental variables; policy evaluation; Kitagawa decomposition; panel data (search for similar items in EconPapers)
JEL-codes: C01 C14 C22 C26 C32 C54 (search for similar items in EconPapers)
Pages: 58
Date: 2024-08-12
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ure
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DOI: 10.24148/wp2024-24

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