EconPapers    
Economics at your fingertips  
 

Impulse Response Estimation By Smooth Local Projections

Régis Barnichon and Christian Brownlees ()

No 11726, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Vector Autoregressions (VAR) and Local Projections (LP) are well established methodologies for the estimation of Impulse Responses (IR). These techniques have complementary features: The VAR approach is more efficient when the model is correctly specified whereas the LP approach is less efficient but more robust to model misspecification. We propose a novel IR estimation methodology -- Smooth Local Projections (SLP) -- to strike a balance between these approaches. SLP consists in estimating LP under the assumption that the IR is a smooth function of the forecast horizon. Inference is carried out using semi-parametric techniques based on Penalized B-splines, which are straightforward to implement in practice. SLP preserves the flexibility of standard LP and at the same time can increase precision substantially. A simulation study shows the large gains in IR estimation accuracy of SLP over LP. We show how SLP may be used with common identification schemes such as timing restrictions and instrumental variables to directly recover structural IRs. We illustrate our technique by studying the effects of monetary shocks.

Keywords: impulse response; local projections; semiparametric estimation (search for similar items in EconPapers)
JEL-codes: C14 C32 C53 E47 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11726 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Impulse Response Estimation by Smooth Local Projections (2019) Downloads
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:cpr:ceprdp:11726

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... rs/dp.php?dpno=11726

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2020-11-21
Handle: RePEc:cpr:ceprdp:11726