Local Projections

A central question in applied research is to estimate the effect of an exogenous intervention or shock on an outcome. The intervention can affect the outcome and controls on impact and over time. Moreover, there can be subsequent feedback between outcomes, controls, and the intervention. Many of these interactions can be untangled using local projections. This method’s simplicity makes it a convenient and versatile tool in the empiricist’s kit, one that is generalizable to complex settings. This article reviews the state of the art for the practitioner and discusses best practices and possible extensions of local projections methods, along with their limitations. (JEL C32, C33, C36, E23, E24)

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Publication Details

Journal
Journal of Economic Literature
Published
2025-03-01
DOI
https://doi.org/10.1257/jel.20241521
Citations
57
Primary Topic
Monetary Policy and Economic Impact
Type
article
Field-Weighted Citation Impact
169.69
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article

Local Projections

Òscar Jordà, Alan M. Taylor
57 citations
Journal of Economic Literature
Monetary Policy and Economic Impact
169.69
article

Local Projections

Òscar Jordà, Alan M. Taylor
article en
57 citations

Abstract

A central question in applied research is to estimate the effect of an exogenous intervention or shock on an outcome. The intervention can affect the outcome and controls on impact and over time. Moreover, there can be subsequent feedback between outcomes, controls, and the intervention. Many of these interactions can be untangled using local projections. This method’s simplicity makes it a convenient and versatile tool in the empiricist’s kit, one that is generalizable to complex settings. This article reviews the state of the art for the practitioner and discusses best practices and possible extensions of local projections methods, along with their limitations. (JEL C32, C33, C36, E23, E24)

Journal of Economic LiteratureVol. 63(1)
Center for Economic and Policy Research (US), Federal Reserve Bank of San Francisco (US), Columbia University (US)
Openalex Percentile: Top 0%
Monetary Policy and Economic Impact
169.69
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