A0535
Title: Functional linear projection and impulse response analysis
Authors: Dakyung Seong - University of Sydney (Australia) [presenting]
Won-Ki Seo - University of Sydney (Australia)
Abstract: Econometric methods are proposed for studying how economic variables respond to function-valued shocks. Methods are developed based on linear projection estimation of predictive regression models with a function-valued predictor and other control variables. It is shown that the linear projection coefficient associated with the functional variable allows for the impulse response interpretation in a functional, structural vector autoregressive model under a certain identification scheme, similar to the well-known Sims' causal chain, but with nontrivial complications in our functional setup. A novel estimator based on an operator Schur complement is proposed, and its asymptotic properties are studied. Its empirical applicability is illustrated with two examples involving functional variables: Economy sentiment distributions and functional monetary policy shocks.
