Estimation of Impulse Response Functions When Shocks are Observed at a Higher Frequency than Outcome Variables

36 Pages Posted: 22 Apr 2019 Last revised: 29 Apr 2020

See all articles by Alexander Chudik

Alexander Chudik

Federal Reserve Banks - Federal Reserve Bank of Dallas

Georgios Georgiadis

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: 2019-03-15

Abstract

This paper proposes mixed-frequency distributed-lag (MFDL) estimators of impulse response functions (IRFs) in a setup where (i) the shock of interest is observed, (ii) the impact variable of interest is observed at a lower frequency (as a temporally aggregated or sequentially sampled variable), (iii) the data-generating process (DGP) is given by a VAR model at the frequency of the shock, and (iv) the full set of relevant endogenous variables entering the DGP is unknown or unobserved. Consistency and asymptotic normality of the proposed MFDL estimators is established, and their small-sample performance is documented by a set of Monte Carlo experiments. The proposed approach is then applied to estimate the daily pass-through of changes in crude oil prices observed at a daily frequency to U.S. gasoline consumer prices observed at a weekly frequency. We find that the pass-through is fast, with about 28% of the crude oil price changes passed through to retail gasoline prices within five working days, and that the speed of the pass-through has increased over time.

Keywords: Mixed frequencies, temporal aggregation, impulse response functions, estimation and inference, VAR models

JEL Classification: C22

Suggested Citation

Chudik, Alexander and Georgiadis, Georgios, Estimation of Impulse Response Functions When Shocks are Observed at a Higher Frequency than Outcome Variables (2019-03-15). Globalization and Monetary Policy Institute Working Paper No. 356, Available at SSRN: https://ssrn.com/abstract=3375169 or http://dx.doi.org/10.24149/gwp356

Alexander Chudik (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Georgios Georgiadis

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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