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Functional Approximation of Impulse Responses

Régis Barnichon and Christian Matthes

Journal of Monetary Economics, 2018, vol. 99, issue C, 41-55

Abstract: A method to estimate the dynamic effects of structural shocks is proposed: “Functional Approximation of Impulse Responses” (FAIR) consists in directly estimating the moving average representation of the data by approximating impulse responses with a set of basis functions. FAIR can offer a number of benefits over alternative impulse response estimators, including VARs and Local Projections: (i) parsimony and efficiency, (ii) ability to summarize the dynamic effects of shocks with a few moments, (iii) ease of prior elicitation and structural identification, and (iv) flexibility in allowing for non-linearities. As an illustration, we study the dynamic effects of monetary shocks, notably their asymmetric effects.

Keywords: Impulse response function; Gaussian basis function; Structural vector moving average; Summary statistics; Asymmetric effects of monetary policy (search for similar items in EconPapers)
JEL-codes: C14 C32 C51 E32 E52 (search for similar items in EconPapers)
Date: 2018
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