Essays in Macroeconometrics

My dissertation consists of 3 chapters that cover two major themes. The first theme is to providemore accurate, robust, and efficient statistical methods to estimate the impact shocks have on theeconomy. The second theme is estimating the time-varying and nonlinear impact shocks have onthe economy.What is the impact of a stimulus package? What is the impact of the Federal Reserve increasingthe fed funds rate? What are the sources of business cycle fluctuations? These are some of themost important questions in macroeconomics, and to answer them it is often necessary toestimate impulse responses. Over the past decade, Local Projections have been increasingly usedto estimate impulse responses. Local Projections are linear regressions that estimate impulseresponses directly. The first chapter of my dissertation, “Local Projections, Autocorrelation, andEfficiency”, introduces a more accurate and robust method to estimate impulse responses usingLocal Projection. These methods can be employed using Bayesian or frequentist methods. I alsoextend Local Projections to be able to estimate time-varying impulse responses.The second chapter of my dissertation, “Identifying Government Spending Shocks, FiscalForesight, and Time-Varying Parameters”, focuses on estimating the government spendingmultiplier, and testing the multiplier for time variation and nonlinearity. Ramey (2011, 2019)document the wide range of estimates for multipliers in both empirical studies and dynamicsimulations. This chapter makes several contributions to the estimation of fiscal multipliers.First, this chapter points out that the current identification schemes for estimating the multiplierare not identifying exogenous changes in government spending, which has caused previousestimates of the multiplier to be biased. I also show that the way the impulse responses areestimated cause additional bias in the multiplier estimates.The third chapter of my dissertation, “A Kalman Filter Test for Structural Instability”, focuses ontesting parameter instability in regression models. Researchers are often interested in whetherthere is parameter instability in regression models. There are several studies that show asignificant amount of macroeconomic and financial time series exhibit parameter instabilityThese changes can occur for many reasons such as policy changes, technological evolution,changing economic conditions, etc. There are a multitude of methods available to test forparameter instability, but it has been demonstrated that the most popular tests for parameterinstability do not perform adequately. That is, even when there is parameter instability, these testshave trouble detecting the instability. In this chapter, I propose a more powerful test to detectparameter instability