A Misspecification-Robust Impulse Response Estimator

• Main Authors: CHANG, Pao Li, SAKATA, Shinichi
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2002
• Subjects: Nonparametric; Persistence; Two-Stage Estimation; Econometrics; Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/688; https://ink.library.smu.edu.sg/context/soe_research/article/1687/viewcontent/irf1.pdf
• Institution: Singapore Management University

Impulse response analysis is typically conducted by fitting an autoregression model to a time series and calculating the moving average coefficients implied by the estimated autoregression model. The possible shape and persistence of the impulse response function implied by a parsimonious autoregression specification are very limited. This paper proposes an alternative approach to estimating impulse response function, which is asymptotically valid yet is less sensitive to model misspecifications in small samples. The small sample advantages of the proposed impulse response estimator over the conventional approach is demonstrated by Monte Carlo studies. The large sample validity of the proposed estimator is also established.