Local Projections vs. VARs: Lessons From Thousands of DGPs

Dake Li, Mikkel Plagborg-Møller, Christian K. Wolf – 2023

Never use local projections in small samples unless you have overwhelming concern for bias, in which case you should really use bias-corrected LP a la @herbstBiasLocalProjections. In such scenarios, use a Bayesian VAR or a least a standard least squares VAR.

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References

@barigozziLargedimensionalDynamicFactor2021

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