School of Economics and Finance

No. 891: Time-Varying Local Projections

Germano Ruisi , Queen Mary University of London

July 29, 2019

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Abstract

In recent years local projections have become a more and more popular methodology for the estimation of impulse responses. Besides being relatively easy to implement, the main strength of this approach relative to the traditional VAR one is that there is no need to impose any specific assumption on the dynamics of the data. This paper models local projections in a time-varying framework and provides a Gibbs sampler routine to estimate them. A simulation study shows how the performance of the algorithm is satisfactory while the usefulness of the model developed here is shown through an application to fiscal policy shocks.

J.E.L classification codes: C11, C32, C36, E32

Keywords:Time-Varying Coefficients, Local Projections