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School of Economics and Finance

No. 938: Impulse response estimation via fexible local projections

Haroon Mumtaz , Queen Mary University London
Michele Piffer , King's College London

April 21, 2022

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This paper introduces a exible local projection that generalises the model by Jordá (2005) to a non-parametric setting using Bayesian Additive Regression Trees. Monte Carlo experiments show that our BART-LP model is able to capture non-linearities in the impulse responses. Our first application shows that the fiscal multiplier is stronger in recession than expansion only in response to contractionary fiscal shocks, but not in response to expansionary fiscal shocks. We then show that financial shocks generate effects on the economy that increase more than proportionately in the size of the shock when the shock is negative, but not when the shock is positive.

J.E.L classification codes: C14, C11, C32, E52

Keywords:Non-linear models, non-parametric techniques, identification

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