Forecast Error Variance Decompositions with Local Projections

Yuriy Gorodnichenko and Byoungchan Lee

Journal of Business & Economic Statistics, 2020, vol. 38, issue 4, 921-933

Abstract: We propose and study properties of an estimator of the forecast error variance decomposition in the local projections framework. We find for empirically relevant sample sizes that, after being bias-corrected with bootstrap, our estimator performs well in simulations. We also illustrate the workings of our estimator empirically for monetary policy and productivity shocks. KEYWORDS: Forecast error variance decomposition; Local projections.

Date: 2020
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DOI: 10.1080/07350015.2019.1610661

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