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General Seemingly Unrelated Local Projections

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  • Florian Huber
  • Christian Matthes
  • Michael Pfarrhofer

Abstract

We provide a framework for efficiently estimating impulse response functions with Local Projections (LPs). Our approach offers a Bayesian treatment for LPs with Instrumental Variables, accommodating multiple shocks and instruments per shock, accounts for autocorrelation in multi-step forecasts by jointly modeling all LPs as a seemingly unrelated system of equations, defines a flexible yet parsimonious joint prior for impulse responses based on a Gaussian Process, allows for joint inference about the entire vector of impulse responses, and uses all available data across horizons by imputing missing values.

Suggested Citation

  • Florian Huber & Christian Matthes & Michael Pfarrhofer, 2024. "General Seemingly Unrelated Local Projections," Papers 2410.17105, arXiv.org, revised Dec 2024.
    • Handle: RePEc:arx:papers:2410.17105
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    References listed on IDEAS

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    1. Christina D. Romer & David H. Romer, 2004. "A New Measure of Monetary Shocks: Derivation and Implications," American Economic Review, American Economic Association, vol. 94(4), pages 1055-1084, September.
    2. Dake Li & Mikkel Plagborg-Møller & Christian K. Wolf, 2021. "Local Projections vs. VARs: Lessons From Thousands of DGPs," Working Papers 2021-55, Princeton University. Economics Department..
    3. Nadav Ben Zeev & Evi Pappa, 2017. "Chronicle of a War Foretold: The Macroeconomic Effects of Anticipated Defence Spending Shocks," Economic Journal, Royal Economic Society, vol. 127(603), pages 1568-1597, August.
    4. Korobilis, Dimitris, 2022. "A new algorithm for structural restrictions in Bayesian vector autoregressions," European Economic Review, Elsevier, vol. 148(C).
    5. Nadav Ben Zeev & Evi Pappa, 2017. "Chronicle of a War Foretold: The Macroeconomic Effects of Anticipated Defence Spending Shocks," Economic Journal, Royal Economic Society, vol. 127(603), pages 1568-1597, August.
    6. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, September.
    7. José Luis Montiel Olea & Mikkel Plagborg‐Møller, 2021. "Local Projection Inference Is Simpler and More Robust Than You Think," Econometrica, Econometric Society, vol. 89(4), pages 1789-1823, July.
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