Skewness-adjusted bootstrap confidence intervals and confidence bands for impulse response functions

Abstract

Inference on impulse response functions from vector autoregressive models is commonly done using bootstrap methods. These methods can be inaccurate in small samples and for persistent processes. This article investigates the construction of skewness-adjusted confidence intervals and joint confidence bands for impulse responses with improved small sample performance. We suggest to adjust the skewness of the bootstrap distribution of the autoregressive coefficients before the impulse response functions are computed. Using extensive Monte Carlo simulations, the approach is shown to improve the coverage accuracy in small- and medium-sized samples and for unit-root processes.