Impulse response analysis for structural dynamic models with nonlinear regressors

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 nite samples than the plug-in estimator.

Publication
Journal of Econometrics, 225(1), pp. 107-130