Calculating Joint Confidence Bands for Impulse Response Functions Using Highest Density Regions

41 Pages Posted: 29 Mar 2016

See all articles by Helmut Luetkepohl

Helmut Luetkepohl

German Institute for Economic Research (DIW Berlin)

Anna Staszewska-Bystrova

University of Lodz, Department of Economics and Sociology

Peter Winker

University of Giessen - Department of Economics

Date Written: March 2016

Abstract

This paper proposes a new non-parametric method of constructing joint confidence bands for impulse response functions of vector autoregressive models. The estimation uncertainty is captured by means of bootstrapping and the highest density region (HDR) approach is used to construct the bands. A Monte Carlo comparison of the HDR bands with existing alternatives shows that the former are competitive with the bootstrap-based Bonferroni and Wald confidence regions. The relative tightness of the HDR bands matched with their good coverage properties makes them attractive for applications. An application to corporate bond spreads for Germany highlights the potential for empirical work.

Keywords: Impulse responses, joint confidence bands, highest density region, vector autoregressive process

JEL Classification: C32

Suggested Citation

Luetkepohl, Helmut and Staszewska-Bystrova, Anna and Winker, Peter, Calculating Joint Confidence Bands for Impulse Response Functions Using Highest Density Regions (March 2016). DIW Berlin Discussion Paper No. 1564. Available at SSRN: https://ssrn.com/abstract=2755992 or http://dx.doi.org/10.2139/ssrn.2755992

Helmut Luetkepohl (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Anna Staszewska-Bystrova

University of Lodz, Department of Economics and Sociology ( email )

Narutowicza 65 str.
PL 90-131, Lodz
Poland

Peter Winker

University of Giessen - Department of Economics ( email )

Licher Str. 62
D-35394 Giessen, DE
Germany

HOME PAGE: http://wiwi.uni-giessen.de/home/oekonometrie/

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