Significance Bands for Local Projections

Atsushi Inoue, Oscar Jorda and Guido Kuersteiner

No 2023-15, Working Paper Series from Federal Reserve Bank of San Francisco

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.

Keywords: local projections; impulse responses; instrumental variables; Wild Bootstrap (search for similar items in EconPapers)
JEL-codes: C11 C12 C22 C32 C44 E17 (search for similar items in EconPapers)
Pages: 13
Date: 2023-05-31
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Working Paper: Significance Bands for Local Projections (2023)
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DOI: 10.24148/wp2023-15

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