Local projections

Jordà , Òscar and Alan M. Taylor

No 19378, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A central question in applied research is to estimate the effect of an exogenous intervention or shock on an outcome. The intervention can affect the outcome and controls on impact and over time. Moreover, there can be subsequent feedback between outcomes, controls and the intervention. Many of these interactions can be untangled using local projections. This method’s simplicity makes it a convenient and versatile tool in the empiricist’s kit, one that is generalizable to complex settings. This article reviews the state-of-the art for the practitioner, discusses best practices and possible extensions of local projections methods, along with their limitations.

Keywords: Local projections; Impulse responses; Multipliers; Instrumental variables; indirect inference (search for similar items in EconPapers)
JEL-codes: C01 C14 C22 C26 C32 C54 (search for similar items in EconPapers)
Date: 2024-08
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