  Local Projection is widely used for impulse response estimation, with the
Fixed Effect (FE) estimator being the default for panel data. This paper
highlights the presence of Nickell bias for all regressors in the FE estimator,
even if lagged dependent variables are absent in the regression. This bias is
the consequence of the inherent panel predictive specification. We recommend
using the split-panel jackknife estimator to eliminate the asymptotic bias and
restore the standard statistical inference. Revisiting three macro-finance
studies on the linkage between financial crises and economic contraction, we
find that the FE estimator substantially underestimates the post-crisis
economic losses.
