Abstract
We study the construction of nonlinear impulse responses in linear structural dynamic models that include nonlinearly transformed regressors. We derive the closed-form solution for the population impulse responses to a given shock and propose a control function approach to estimating these responses without taking a stand on how the remainder of the model is identified. Our plug-in estimator dispenses with the need for simulations and, unlike conventional local projection (LP) estimators, is consistent. A modified LP estimator is shown to be consistent in special cases, but less accurate in finite samples than the plug-in estimator.
Original language | English |
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Pages (from-to) | 107-130 |
Number of pages | 24 |
Journal | Journal of Econometrics |
Volume | 225 |
Issue number | 1 |
DOIs | |
State | Published - Nov 2021 |
Bibliographical note
Publisher Copyright:© 2021 Elsevier B.V.
Keywords
- Block recursive model
- Censored regressor
- Control function
- Local projection
- Monte Carlo integration
- Nonlinear responses
- Nonlinear transformation
- Partial identification
- Structural model
ASJC Scopus subject areas
- Economics and Econometrics