Quasi-Bayesian Local Projections: Simultaneous Inference and Extension to the Instrumental Variable Method

Masahiro Tanaka

Papers from arXiv.org

Abstract: Local projections (LPs) are widely used for impulse response analysis, but Bayesian methods face challenges due to the absence of a likelihood function. Existing approaches rely on pseudo-likelihoods, which often result in poorly calibrated posteriors. We propose a quasi-Bayesian method based on the Laplace-type estimator, where a quasi-likelihood is constructed using a generalized method of moments criterion. This approach avoids strict distributional assumptions, ensures well-calibrated inferences, and supports simultaneous credible bands. Additionally, it can be naturally extended to the instrumental variable method. We validate our approach through Monte Carlo simulations.

Date: 2025-03, Revised 2025-09
New Economics Papers: this item is included in nep-dcm, nep-ecm and nep-ets
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