Inference for Impulse Responses

Oscar Jorda

No 201, Working Papers from University of California, Davis, Department of Economics

Abstract: Poor identification of individual impulse response coefficients does not necessarily mean that animpulse response is imprecisely estimated. This paper introduces a three-pronged approach on howto communicate uncertainty of impulse response estimates: (1) withWald tests of joint significance;(2) with conditional t-tests of individual marginal coefficient significance; and (3) with fan chartsbased on the percentiles of the joint Wald statistics. The paper also shows how to anchor theimpulse response analysis with a priori economic restrictions that can be formally tested and usedto tighten structural identification. These methods are universal and do not depend on how theimpulse responses are estimated. An empirical application illustrates the techniques in practice.

Keywords: impulse response function; local projections; vector autoregressions (search for similar items in EconPapers)
JEL-codes: C32 C53 E47 (search for similar items in EconPapers)
Pages: 40
Date: 2007-06-06
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Citations: View citations in EconPapers (2)

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