A, B, C’s (And D’s) For Understanding VARS

Jesus Fernandez-Villaverde (), Juan F Rubio-Ramirez () and Thomas Sargent ()

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: The dynamics of a linear (or linearized) dynamic stochastic economic model can be expressed in terms of matrices (A,B,C,D) that define a state space system. An associated state space system (A,K,C, Sigma) determines a vector autoregression for observables available to an econometrician. We review circumstances under which the impulse response of the VAR resembles the impulse response associated with the economic model. We give four examples that illustrate a simple condition for checking whether the mapping from VAR shocks to economic shocks is invertible. The condition applies when there are equal numbers of VAR and economic shocks.

Keywords: VARs; Invertibility; Estimation of Dynamic Equilibrium Models; economic shocks; innovations (search for similar items in EconPapers)
JEL-codes: E0 C11 C3 (search for similar items in EconPapers)
Date: 2005-05-02
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Related works:
Working Paper: A,B,C's (and D's)'s for Understanding VARS (2005)
Working Paper: A, B, C’s, (and D’s) for understanding VARs (2005)
Working Paper: A, B, C's (and D)'s for Understanding VARs (2005)
Working Paper: A,B,C's (and D's)'s for Understanding VARS (2006)
Journal Article: ABCs (and Ds) of Understanding VARs
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Persistent link: http://EconPapers.repec.org/RePEc:pen:papers:05-018

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