Local Projections and VARs Estimate the Same Impulse Responses

• 成果类型: Article
• 署名作者: Plagborg-Moller, Mikkel; Wolf, Christian K.
• 署名单位: Princeton University; University of Chicago
• 刊物名称: ECONOMETRICA
• ISSN/ISSBN: 0012-9682
• DOI: 10.3982/ECTA17813
• 发表日期: 2021
• 页码: 955-980
• 关键词: monetary-policy; sign restrictions; DIRECT MULTISTEP; time-series; shocks; identification; inference; run; macroeconomics; demand

摘要

We prove that local projections (LPs) and Vector Autoregressions (VARs) estimate the same impulse responses. This nonparametric result only requires unrestricted lag structures. We discuss several implications: (i) LP and VAR estimators are not conceptually separate procedures; instead, they are simply two dimension reduction techniques with common estimand but different finite-sample properties. (ii) VAR-based structural identification-including short-run, long-run, or sign restrictions-can equivalently be performed using LPs, and vice versa. (iii) Structural estimation with an instrument (proxy) can be carried out by ordering the instrument first in a recursive VAR, even under noninvertibility. (iv) Linear VARs are as robust to nonlinearities as linear LPs.