The Retreat from Causality: Local Projections and Econometrics Without Economics

Chung, Sungyup (2025): The Retreat from Causality: Local Projections and Econometrics Without Economics.

Abstract

This paper critically examines the local projections method introduced by Jordà (2005), questioning its validity in the absence of a well-defined causal framework. Although local projections have been widely adopted for their technical simplicity and perceived robustness, this study argues that such methods may obscure, rather than clarify, underlying causal mechanisms. At the heart of the critique is the method's neglect of the recursive and interdependent structure of the data-generating process, which results in logically inconsistent assumptions and potentially distorted forecasts.

• Item Type: MPRA Paper
• Language: English
• Keywords: Local Projection, Causality, Econometrics
• Subjects: A - General Economics and Teaching > A1 - General Economics > A11 - Role of Economics ; Role of Economists ; Market for Economists; A - General Economics and Teaching > A1 - General Economics > A12 - Relation of Economics to Other Disciplines; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C18 - Methodological Issues: General; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C50 - General

References

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