Econometrics Seminar - Henri Nyberg (University of Turku)

Title: Nearest neighbours-based impulse response analysis: U.S. government spending multipliers in nonparametric world (with Markku Lanne)

Abstract: We introduce a nonparametric approach based on a nearest-neighbours estimator to computing impulse response functions. Instead of identifying structural shocks in a vector autoregressive model, we search for clusters of recurrent patterns of observations resembling given initial conditions or any hypothetical scenario before and after a shock hits. By comparing the dynamics of the variables of interest in these two situations, we are able to trace out the effects of the shock. In an empirical application to U.S. fiscal policy, we show that the government spending multiplier is moderate, typically clearly smaller than one, and at most only weakly dependent on initial macroeconomic conditions, including the phase of the business cycle.

Password: moses
Hosted by: Tomasz Woźniak