The difference between SVAR-IV and Local Projection IV #71
YoshiShono
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This is a memo for the difference between SVAR-IV and Local Projection IV. Recently, many macroeconomists use time-series analysis with instrumental variables. (Some people may seem to prefer local projection since the specification of local projection is more flexible than VAR.) Also, strictly speaking, the empirical assumptions are also a little bit different between them. Mertens and Montiel Olea (2018) discuss it in detail (Following URL.)
https://academic.oup.com/qje/article/133/4/1803/4880451
On the other hand, the interesting result is that at horizon zero, the two different methodology generates the same results including point estimates and confidence intervals. So, we can use this property to check the accruracy of our codes.
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