DP2208 Comparison of Bootstrap Confidence Intervals for Impulse Responses of German Monetary Systems

Author(s): Alexander Benkwitz, Helmut Lütkepohl, Jürgen Wolters
Publication Date: August 1999
Keyword(s): Bootstrap, Impulse Response, Monetary Policy, Money Demand System
JEL(s): C32
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2208

It is argued that standard impulse response analysis based on vector autoregressive models has a number of shortcomings. Although the impulse responses are estimated quantities, measures for sampling variability such as confidence intervals are often not provided. If confidence intervals are given they are often based on bootstrap methods with poor theoretical properties. These problems are illustrated using two German monetary systems. Proposals are made for improving current practice. Special emphasis is placed on systems with cointegrated variables.