A Back-of-the-Envelope Rule to Identify Atheoretical VARs

Carlos M. Urzúa ()

EGAP Computer Code from Tecnológico de Monterrey, Campus Ciudad de México

Abstract: This is the computer code companion of a paper with the same title, and whose abstract is as follows: Vector autoregressive models are often used in Macroeconomics to draw conclusions about the effects of policy innovations. However, those results depend on the researcher’s priors about the particular ordering of the variables. As an alternative, this paper presents a simple rule based on the Maximum Entropy principle that can be used to find the “most likely” ordering. The proposal is illustrated in the case of a VAR model of the U.S. economy. It is found that monetary policy shocks are better represented by innovations in the federal funds rate rather than by innovations in non-borrowed reserves.

Language: GAUSS
Keywords: VAR; impulse-response functions; varimin; maximum entropy; monetary policy shocks; GAUSS (search for similar items in EconPapers)
JEL-codes: C32 C51 C87 E52 (search for similar items in EconPapers)
Date: Written 2006-12

Downloads: (external link)
http://alejandria.ccm.itesm.mx/egap/documentos/CC-2007-01.src (text/plain)

Related works:
Working Paper: A Back-of-the-Envelope Rule to Identify Atheoretical VARs (2007)
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