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Functional Approximation of Impulse Responses

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  • Barnichon, Regis
  • Matthes, Christian

Abstract

A method to estimate the dynamic effects of structural shocks is proposed: “Functional Approximation of Impulse Responses” (FAIR) consists in directly estimating the moving average representation of the data by approximating impulse responses with a set of basis functions. FAIR can offer a number of benefits over alternative impulse response estimators, including VARs and Local Projections: (i) parsimony and efficiency, (ii) ability to summarize the dynamic effects of shocks with a few moments, (iii) ease of prior elicitation and structural identification, and (iv) flexibility in allowing for non-linearities. As an illustration, we study the dynamic effects of monetary shocks, notably their asymmetric effects.

Suggested Citation

  • Barnichon, Regis & Matthes, Christian, 2018. "Functional Approximation of Impulse Responses," Journal of Monetary Economics, Elsevier, vol. 99(C), pages 41-55.
    • Handle: RePEc:eee:moneco:v:99:y:2018:i:c:p:41-55
    DOI: 10.1016/j.jmoneco.2018.04.013
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    More about this item

    Keywords

    Impulse response function; Gaussian basis function; Structural vector moving average; Summary statistics; Asymmetric effects of monetary policy;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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