Comparison of Local Projection Estimators for Proxy Vector Autoregressions

58 Pages Posted: 15 Jun 2021

See all articles by Martin Bruns

Martin Bruns

University of East Anglia (UEA) - School of Economics

Helmut Lütkepohl

Free University of Berlin (FUB)

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Date Written: May 2021

Abstract

Different local projection (LP) estimators for structural impulse responses of proxy vector autoregressions are reviewed and compared algebraically and with respect to their small sample suitability for inference. Conditions for numerical equivalence and similarities of some estimators are provided. A new LP type estimator is also proposed which is very easy to compute. Two generalized least squares (GLS) projection estimators are found to be more accurate than the other LP estimators in small samples. In particular, a lag-augmented GLS estimator tends to be superior to its competitors and to perform as well as a standard VAR estimator for sufficiently large samples.

Keywords: Structural vector autoregression, local projection, impulse responses, instrumental variable

JEL Classification: C32

Suggested Citation

Bruns, Martin and Lütkepohl, Helmut, Comparison of Local Projection Estimators for Proxy Vector Autoregressions (May 2021). DIW Berlin Discussion Paper No. 1949, Available at SSRN: https://ssrn.com/abstract=3864920 or http://dx.doi.org/10.2139/ssrn.3864920

Martin Bruns (Contact Author)

University of East Anglia (UEA) - School of Economics ( email )

3.06, Registry
University of East Anglia
Norwich, NR4 7TJ
United Kingdom

Helmut Lütkepohl

Free University of Berlin (FUB)

Otto Suhr Institut for Political Science\
Ihnestrasse 21
Berlin
Germany

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