Comparison of local projection estimators for proxy vector autoregressions

Martin Bruns; Helmut Luetkepohl

doi:10.1016/j.jedc.2021.104277

Comparison of local projection estimators for proxy vector autoregressions

Martin Bruns, Helmut Luetkepohl

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Abstract

Different local projection (LP) estimators for structural impulse responses of proxy vector autoregressions are reviewed and compared algebraically and with respect to their small sample suitability for inference. Conditions for numerical equivalence and similarities of some estimators are provided. Two generalized least squares (GLS) projection estimators are found to be more accurate than the other LP estimators in small samples. In particular, a lag-augmented GLS estimator tends to be superior to its competitors and to perform as well as a standard VAR estimator for sufficiently large samples.

Original language	English
Article number	104277
Journal	Journal of Economic Dynamics and Control
Volume	134
Early online date	29 Nov 2021
DOIs	https://doi.org/10.1016/j.jedc.2021.104277
Publication status	Published - Jan 2022

Keywords

Impulse responses
Instrumental variable
Local projection
Structural vector autoregression

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10.1016/j.jedc.2021.104277

Accepted_manuscriptAccepted author manuscript, 876 KBLicence: CC BY-NC-ND

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AB - Different local projection (LP) estimators for structural impulse responses of proxy vector autoregressions are reviewed and compared algebraically and with respect to their small sample suitability for inference. Conditions for numerical equivalence and similarities of some estimators are provided. Two generalized least squares (GLS) projection estimators are found to be more accurate than the other LP estimators in small samples. In particular, a lag-augmented GLS estimator tends to be superior to its competitors and to perform as well as a standard VAR estimator for sufficiently large samples.

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KW - Local projection

KW - Structural vector autoregression

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Comparison of local projection estimators for proxy vector autoregressions

Abstract

Keywords

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