Bootstrap inference for impulse response functions in factor‐augmented vector autoregressions

Summary In this study, we consider residual‐based bootstrap methods to construct the confidence interval for structural impulse response functions in factor‐augmented vector autoregressions. In particular, we compare the bootstrap with factor estimation (Procedure A) with the bootstrap without factor estimation (Procedure B). Both procedures are asymptotically valid under the condition T/N→0, where N and T are the cross‐sectional dimension and the time dimension, respectively. However, Procedure A is also valid even when T/N→c with 0 ≤ c