Micro Responses to Macro Shocks

Martin Almuzara and Víctor Sancibrián

No 1090, Staff Reports from Federal Reserve Bank of New York

Abstract: We study panel data regression models when the shocks of interest are aggregate and possibly small relative to idiosyncratic noise. This speaks to a large empirical literature that targets impulse responses via panel local projections. We show how to interpret the estimated coefficients when units have heterogeneous responses and how to obtain valid standard errors and confidence intervals. A simple recipe leads to robust inference: including lags as controls and then clustering at the time level. This strategy is valid under general error dynamics and uniformly over the degree of signal-to-noise of macro shocks.

Keywords: panel data; local projections; impulse responses; aggregate shocks; inference; heterogeneity; signal-to-noise (search for similar items in EconPapers)
JEL-codes: C32 C33 C38 C51 (search for similar items in EconPapers)
Pages: 70
Date: 2024-03-01
New Economics Papers: this item is included in nep-ecm and nep-ets
Note: Revised September 2024.
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Working Paper: Micro responses to macro shocks (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:97956

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DOI: 10.59576/sr.1090

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