skip to content

Faculty of Economics

Journal Cover

Teulings, C.N. and Zubanov, N.

Is economic recovery a myth? robust estimation of impulse responses

Journal of Applied Econometrics

(2013)

Abstract: We estimate the impulse response function (IRF) of GDP to a banking crisis using an extension of the local projections method. We demonstrate that, though robust to misspecifications of the data-generating process, this method suffers from a hitherto unnoticed bias which increases with the forecast horizon. We propose a correction to this bias and show through simulations that it works well. Applying our corrected local projections estimator to the data from a panel of 99 countries observed between 1974 and 2001, we find that an average banking crisis yields a GDP loss of just under 10% in 10 years, with little sign of recovery. Like the original local projections method, our extension of it is widely applicable.

Author links:

Publisher's Link: http://onlinelibrary.wiley.com/doi/10.1002/jae.2333/abstract



Papers and Publications



Recent Publications


Onatski, A. and Wang, C. Alternative Asymptotics for Cointegration Tests in Large VARs Econometrica [2018]

Carvalho, V. M. and Grassi, B. Large Firm Dynamics and the Business Cycle American Economic Review [2019]

Aidt, T. S., Asatryan, Z., Badalyan, L. and Heinemann, F. Vote Buying or (Political) Business (Cycles) as Usual? Review of Economics and Statistics [2020]

Linton, O. A coupled component DCS-EGARCH model for intraday and overnight volatility Journal of Econometrics [2020]