Local projections, autocorrelation, and efficiency

• 成果类型: Article
• 署名作者: Lusompa, Amaze
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - Kansas City
• 刊物名称: QUANTITATIVE ECONOMICS
• ISSN/ISSBN: 1759-7323
• DOI: 10.3982/QE1988
• 发表日期: 2023
• 页码: 1199-1220
• 关键词: Impulse responses; local projections; autocorrelation; GLS; C32; C36

摘要

It is well known that Local Projections (LP) residuals are autocorrelated. Conventional wisdom says that LP have to be estimated by OLS and that GLS is not possible because the autocorrelation process is unknown and/or because the GLS estimator would be inconsistent. I show that the autocorrelation process of LP can be written as a Vector Moving Average (VMA) process of the Wold errors and impulse responses and that autocorrelation can be corrected for using a consistent GLS estimator. Monte Carlo simulations show that estimating LP with GLS can lead to more efficient estimates.