Estimating Impulse Response Functions When the Shock Series Is Observed

Abstract: We compare the finite sample performance of a variety of consistent approaches to estimating Impulse Response Functions (IRFs) in a linear setup when the shock of interest is observed. Although there is no uniformly superior approach, iterated approaches turn out to perform well in terms of root mean-squared error (RMSE) in diverse environments and sample sizes. For smaller sample sizes, parsimonious specifications are preferred over full specifications with all ‘relevant’ variables.

DOI: https://doi.org/10.24149/gwp353

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