Dake Li, Mikkel Plagborg-Møller, Christian K. Wolf
arXiv 1 Apr 2021 · Econometrics · publishedJournal of Econometrics (2024) · 79 citations (OpenAlex)
arXiv:2104.00655 · PDF · DOI · OpenAlex · Extracted main text
We conduct a simulation study of Local Projection (LP) and Vector Autoregression (VAR) estimators of structural impulse responses across thousands of data generating processes, designed to mimic the properties of the universe of U.S. macroeconomic data. Our analysis considers various identification schemes and several variants of LP and VAR estimators, employing bias correction, shrinkage, or model averaging. A clear bias-variance trade-off emerges: LP estimators have lower bias than VAR estimators, but they also have substantially higher variance at intermediate and long horizons. Bias-corrected LP is the preferred method if and only if the researcher overwhelmingly prioritizes bias. For researchers who also care about precision, VAR methods are the most attractive -- Bayesian VARs at short and long horizons, and least-squares VARs at intermediate and long horizons.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Stock, J. H. & Watson, M. W (2016) Dynamic factor models, factor-augmented vector autoregressions, and structural vector autoregressions in macroeconomics | 1.000 | 18 | 4 | 100% |
| 2 | Ramey, V. A (2016) Macroeconomic Shocks and Their Propagation | 1.000 | 6 | 4 | 100% |
| 3 | Herbst, E. & Johannsen, B. K (2023) Bias in Local Projections | 0.935 | 11 | 5 | 82% |
| 4 | Schorfheide, F (2005) VAR forecasting under misspecification | 0.928 | 4 | 3 | 100% |
| 5 | Plagborg-Mller, M. & Wolf, C. K (2021) Local Projections and VARs Estimate the Same Impulse Responses | 0.923 | 14 | 5 | 79% |
| 6 | Pope, A. L (1990) Biases of Estimators in Multivariate Non-Gaussian Autoregressions | 0.874 | 6 | 4 | 67% |
| 7 | Ramey, V. A (2011) Identifying Government Spending Shocks: It's All in the Timing | 0.843 | 4 | 4 | 75% |
| 8 | Giannone, D., Lenza, M., & Primiceri, G. E (2015) Prior selection for vector autoregressions | 0.843 | 5 | 4 | 60% |
| 9 | Kilian, L (1998) Small-sample Confidence Intervals for Impulse Response Functions | 0.830 | 7 | 4 | 57% |
| 10 | Hansen, B. E (2016) Stein Combination Shrinkage for Vector Autoregressions | 0.794 | 8 | 4 | 50% |
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