Local Projections

2025/03/01 by Òscar Jordà, Alan M. Taylor · 98 citations
Economics, Econometrics and Finance · #Economic geography #Geography #Housing Market and Economics #Monetary Policy and Economic Impact #Spatial and Panel Data Analysis

paper · doi:10.1257/jel.20241521

published in Journal of Economic Literature 63(1), 59-110 (American Economic Association)

openalex publication_date 2025/03/01 · openalex created_date 2025/03/05 · openalex updated_date 2026/08/05

Abstract

A central question in applied research is to estimate the effect of an exogenous intervention or shock on an outcome. The intervention can affect the outcome and controls on impact and over time. Moreover, there can be subsequent feedback between outcomes, controls, and the intervention. Many of these interactions can be untangled using local projections. This method’s simplicity makes it a convenient and versatile tool in the empiricist’s kit, one that is generalizable to complex settings. This article reviews the state of the art for the practitioner and discusses best practices and possible extensions of local projections methods, along with their limitations. (JEL C32, C33, C36, E23, E24)

Citations

• Biases in Dynamic Models with Fixed Effects
• Estimation and Inference of Impulse Responses by Local Projections
• The central role of the propensity score in observational studies for causal effects
• The Time for Austerity: Estimating the Average Treatment Effect of Fiscal Policy
• Efficient Estimation of Average Treatment Effects Using the Estimated Propensity Score

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Related

• Opening the Black Box of Local Projections
• Local Projections Inference with High-Dimensional Covariates without Sparsity
• Estimation and Inference of Impulse Responses by Local Projections
• Inference for Local Projections
• Local Projection Inference Is Simpler and More Robust Than You Think