Impulse Response Confidence Intervals for Persistent Data: What Have We Learned?

Elena Pesavento

No ECO2006/19, Economics Working Papers from European University Institute

Abstract: This paper is a comprehensive comparison of existing methods for constructing confidence bands for univariate impulse response functions in the presence of high persistence. Monte Carlo results show that Kilian (1998a), Wright (2000), Gospodinov (2004) and Pesavento and Rossi (2005) have favorable coverage properties, although they differ in terms of robustness at various horizons, median unbiasedness, and reliability in the possible presence of a unit or mildly explosive root. On the other hand, methods like Runkle’s (1987) bootstrap, Andrews and Chen (1994), and regressions in levels or first differences (even when based on pre-tests) may not have accurate coverage properties. The paper makes recommendations as to the appropriateness of each method in empirical work.

Keywords: Local to unity asymptotics; persistence; impulse response functions (search for similar items in EconPapers)
JEL-codes: C1 C2 (search for similar items in EconPapers)
Date: 2006
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Related works:
Journal Article: Impulse response confidence intervals for persistent data: What have we learned? (2007)
Working Paper: Impulse Response Confidence Intervals for Persistent Data: What Have We Learned? (2006)
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