Bootstrapping structural VARs: Avoiding a potential bias in confidence intervals for impulse response functions

Kerk L. Phillips and David Spencer

Journal of Macroeconomics, 2011, vol. 33, issue 4, 582-594

Abstract: Constructing bootstrap confidence intervals for impulse response functions (IRFs) from structural vector autoregression (SVAR) models has become standard practice in empirical macroeconomic research. The accuracy of such confidence intervals can deteriorate severely, however, if the bootstrap IRFs are biased. We document an apparently common source of bias in the estimation of the VAR error covariance matrix which can be easily reduced by a scale adjustment. This bias is generally unrecognized because it only affects the bootstrap estimates of the error variance, not the original OLS estimates. Nevertheless, as we illustrate here, analytically, with sampling experiments, and in an example from the literature, the bootstrap error variance bias can have significant distorting effects on bootstrap IRF confidence intervals. We also show that scale-adjusted bootstrap confidence intervals can be expected to exhibit improved coverage accuracy.

Keywords: Impulse response function; Structural VAR; Bias; Bootstrap (search for similar items in EconPapers)
JEL-codes: C32 E32 E37 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0164070411000218
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Bootstrapping Structural VARs: Avoiding a Potential Bias in Confidence Intervals for Impulse Response Functions (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:33:y:2011:i:4:p:582-594

DOI: 10.1016/j.jmacro.2011.02.007

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().