Differences From Differencing: Should Local Projections With Observed Shocks Be Estimated in Levels or Differences?
差分带来的差异：观测冲击的局部投影应使用水平还是差分？
ABSTRACT We show there are large finite‐sample estimation improvements from estimating local projections (LP) in a cumulated differences (long‐differenced) specification vs. a specification in levels when the impulse response of interest is to an externally identified (“observed”) shock. The long‐differenced specification substantially reduces, and in many cases eliminates, estimation bias, as well as significantly improves confidence interval coverage. These improvements…