Significance Bands for Local Projections

Atsushi Inoue, Jordà , Òscar and Guido Kuersteiner

No 18271, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: An impulse response function describes the dynamic evolution of an outcome variable following a stimulus or treatment. A common hypothesis of interest is whether the treatment affects the outcome. We show that this hypothesis is best assessed using significance bands rather than relying on commonly displayed confidence bands. Under the null hypothesis, we show that significance bands are trivial to construct with standard statistical software using the LM principle, and should be reported as a matter of routine when displaying impulse responses graphically.

JEL-codes: C11 C12 C22 C32 C44 E17 (search for similar items in EconPapers)
Date: 2023-07
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Working Paper: Significance Bands for Local Projections (2023)
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