Estimation of Impulse Response Functions Using Long Autoregression

• Main Authors: CHANG, Pao Li, SAKATA, Shinichi
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2007
• Subjects: Local projection; autogression; Econometrics
• Online Access: https://ink.library.smu.edu.sg/soe_research/503; https://ink.library.smu.edu.sg/context/soe_research/article/1502/viewcontent/Estimation_of_Impulse_Response_Paolichang_2007.pdf
• Institution: Singapore Management University

This article proposes an alternative methodology to estimate impulse response functions without imposing parametric restrictions. The impulse responses are estimated by regressing the series of interest on estimated innovations, which are the residuals obtained from a prior-stage ‘long autoregression.’ We establish the consistency and asymptotic normality of the proposed estimator. The proposed estimator is closely related to the estimator of Jordà (2005, American Economic Review 95, 161–182). Our large sample analysis, as a byproduct, establishes the asymptotic equivalence between Jordà's estimator and our estimator, and provides justifications for the statistical inference method used in Jordà (2005).