The Korean Journal of Applied Statistics (응용통계연구)

The Korean Statistical Society (한국통계학회)
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Estimation of Nonlinear Impulse Responses of Stock Indices by Asset Class

  • Received : 2012.01.05
  • Accepted : 2012.02.16
  • Published : 2012.04.30
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Abstract

We estimate nonlinear impulse responses of stock indices by asset class by the Local Projection method as suggested by Jorda (2005) to compute impulse responses. The method estimates impulse responses without the specification and estimation of the underlying multivariate dynamic system unlike the usual way of vector autoregression(VAR). It estimates Local Projections at each period of interest rather than extrapolating into increasingly distant horizons with the advantages of easy estimation and non-linear flexible specification. The Local Projection method adequately captures the nonlinearity and asymmetry of the impulse responses of the stock indices compared to those from VARs.

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References

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