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General Seemingly Unrelated Local Projections
[Submitted on 22 Oct 2024 (v1), last revised 1 Jun 2026 (this ve · 2026-06-02 · via stat updates on arXiv.org

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Abstract:We develop a flexible framework for Bayesian estimation of impulse responses using Local Projections (LPs) with instrumental variables. It accommodates multiple shocks and instruments, accounts for autocorrelation in multi-step forecasts by jointly modeling all LPs as a seemingly unrelated system of equations, defines a flexible yet parsimonious joint prior for impulse responses based on a Gaussian Process, and allows for joint inference about the entire vector of impulse responses. We show via Monte Carlo simulations that our approach delivers more accurate point and uncertainty estimates than standard methods. To address misspecification, we propose an optional robustification step based on power posteriors.

Submission history

From: Michael Pfarrhofer [view email]
[v1] Tue, 22 Oct 2024 15:30:01 UTC (836 KB)
[v2] Tue, 17 Dec 2024 07:49:20 UTC (903 KB)
[v3] Fri, 8 Aug 2025 07:02:26 UTC (415 KB)
[v4] Mon, 1 Jun 2026 10:27:12 UTC (415 KB)