Title: Quantile local projections: Identification, smooth estimation, and inference
Authors: Josef Ruzicka - Nazarbayev University (Kazakhstan) [presenting]
Abstract: Standard impulse response functions measure the average effect of a shock on a response variable. However, different parts of the distribution of the response variable may react to the shock differently. A popular method to capture this heterogeneity is quantile local projections. We show how to identify them by short-run restrictions, long-run restrictions or external instruments, and establish their asymptotics. To overcome their excessive volatility, we introduce two novel smoothing estimators. We propose information criteria for optimal smoothing and apply the estimators to shocks in financial conditions and monetary policy. We demonstrate that financial conditions affect the entire distribution of future GDP growth and not just its lower part.