Impulse Response Functions for Self-Exciting Nonlinear Models

Neville Francis, Michael Owyang and Daniel Soques

No 2023-021, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We calculate impulse response functions from regime-switching models where the driving variable can respond to the shock. Two methods used to estimate the impulse responses in these models are generalized impulse response functions and local projections. Local projections depend on the observed switches in the data, while generalized impulse response functions rely on correctly specifying regime process. Using Monte Carlos with different misspecifications, we determine under what conditions either method is preferred. We then extend model-average impulse responses to this nonlinear environment and show that they generally perform better than either generalized impulse response functions and local projections. Finally, we apply these findings to the empirical estimation of regime-dependent fiscal multipliers and find multipliers less than one and generally small differences across different states of slack.

Keywords: generalized impulse response functions; local projections; threshold models; model averaging (search for similar items in EconPapers)
JEL-codes: C22 C24 E62 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2023-08-29, Revised 2023-08-29
New Economics Papers: this item is included in nep-ecm and nep-ets
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Working Paper: Impulse Response Functions for Self-Exciting Nonlinear Models (2023)
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DOI: 10.20955/wp.2023.021

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