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Staff Reports

Micro Responses to Macro Shocks

Number 1090
March 2024 Revised September 2024

JEL classification: C32, C33, C38, C51

Authors: Martín Almuzara and Víctor Sancibrián

We study panel data regression models when the shocks of interest are aggregate and possibly small relative to idiosyncratic noise. This speaks to a large empirical literature that targets impulse responses via panel local projections. We show how to interpret the estimated coefficients when units have heterogeneous responses and how to obtain valid standard errors and confidence intervals. A simple recipe leads to robust inference: including lags as controls and then clustering at the time level. This strategy is valid under general error dynamics and uniformly over the degree of signal-to-noise of macro shocks.

Full Article

Author Disclosure Statement(s)

Martín “Tincho” Almuzara
I declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy.

Víctor Sancibrián
I declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy.

Suggested Citation:
Almuzara, Martín and Víctor Sancibrián. 2024. “Micro Responses to Macro Shocks.” Federal Reserve Bank of New York Staff Reports, no. 1090, March. https://doi.org/10.59576/sr.1090

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