Finance and Economics Discussion Series (FEDS)
August 2025
Discussion of “Dynamic Causal Effects in a Nonlinear World: the Good, the Bad, and the Ugly”
Edward P. Herbst and Benjamin K. Johannsen
Abstract:
This comment discusses Kolesár and Plagborg-Møller's (2025) finding that the standard linear local projection (LP) estimator recovers the average marginal effect (AME) even in nonlinear settings. We apply and discuss a subset their results using a simple nonlinear time series model, emphasizing the role of the weighting function and the impact of nonlinearities on small-sample properties.
Keywords: Local projections, average marginal effect, nonlinear time series , small-sample properties., weighting function
DOI: https://doi.org/10.17016/FEDS.2025.058
PDF: Full Paper
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