SMU SOE Online Seminar (Mar 19, 2021, 9am-10.30am): Bias in Local Projections

Please click here if you are unable to view this page.

ABSTRACT Local projections (LPs) are a popular tool in macroeconomic research. We show that LPs are often used with very small samples in the time dimension. Consequently, LP point estimates can be severely biased. We derive simple expressions for this bias and propose a way to bias-correct LPs. Small sample bias can also lead autocorrelation robust standard errors to dramatically understate sampling uncertainty. We argue they should be avoided in LPs like the ones we study. Using identified monetary policy shocks, we demonstrate that the bias in point estimates can be economically meaningful and the bias in standard errors can affect inference. Click here to view the paper. Click here to view the CV.		This seminar will be held virtually via Zoom. A confirmation email with the Zoom details will be sent to the registered email by 18 March 2021.
		PRESENTER Edward Herbst Federal Reserve Board
		RESEARCH FIELD Macroeconometrics
		DATE: 19 March 2021 (Friday)
		TIME: 9.00am - 10.30am