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Impulse Response Functions for Self-Exciting Nonlinear Models

Author

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  • Neville Francis
  • Michael T. Owyang
  • Daniel Soques

Abstract

We calculate impulse response functions from regime-switching models where the driving variable can respond to the shock. Our focus is on nonlinear vector autoregressions with a variety of specifications for the transition function used throughout the literature. Using Monte Carlo simulations with different misspecifications, we identify the conditions under which impulse response function estimates exhibit significant bias. Furthermore, we extend the concept of model-average impulse responses to this nonlinear context and demonstrate their robustness to model misspecification. Applying these methodologies to the empirical estimation of regime-dependent fiscal multipliers, we find that the multipliers are generally less than one, with small differences observed across varying states of economic slack.

Suggested Citation

  • Neville Francis & Michael T. Owyang & Daniel Soques, 2023. "Impulse Response Functions for Self-Exciting Nonlinear Models," Working Papers 2023-021, Federal Reserve Bank of St. Louis, revised 29 Aug 2023.
    • Handle: RePEc:fip:fedlwp:96679
    DOI: 10.20955/wp.2023.021
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    Cited by:

    1. De Santis, Roberto A. & Tornese, Tommaso, 2024. "US monetary policy is more powerful in low economic growth regimes," Working Paper Series 2919, European Central Bank.

    More about this item

    Keywords

    generalized impulse response functions; threshold models; regime switching models; model averaging;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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