Tracing economic shocks through history

2026

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This policy brief introduces a novel decomposition method for local projections, enhancing the interpretability and reliability of economic shock analysis by revealing the historical events that drive estimates.

* Explains a new decomposition method for local projections (LPs) to identify historical drivers of economic shock estimates.
* Illustrates the method with applications to oil supply shocks and monetary policy, highlighting differences between linear and nonlinear models.
* Demonstrates how the approach can improve the assessment of LP reliability and uncover state-dependent effects in economic responses.

Tags: local projections, machine learning, economic shocks, impulse response, econometrics

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