Title: Calculating joint confidence bands for impulse response functions using highest density regions
Authors: Helmut Luetkepohl - DIW Berlin and Freie Universitaet Berlin (Germany)
Anna Staszewska-Bystrova - University of Lodz (Poland)
Peter Winker - University of Giessen (Germany) [presenting]
Abstract: A new non-parametric method is proposed to construct joint confidence bands for impulse response functions of vector autoregressive models. The estimation uncertainty is captured by means of bootstrapping and the highest density region (HDR) approach is used to construct the bands. A Monte Carlo comparison of the HDR bands with existing alternatives shows that the former are competitive with the bootstrap-based Bonferroni and Wald confidence regions. The relative tightness of the HDR bands matched with their good coverage properties makes them attractive for applications. An application to corporate bond spreads for Germany highlights the potential for empirical work.