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Policy Inference Using VAR Models

Rik Hafer () and Richard Sheehan

Economic Inquiry, 1991, vol. 29, issue 1, 44-52

Abstract: There has been relatively little systematic investigation of the sensitivity of policy inferences derived from vector autoregressive models to changes in the lag structure. The authors investigate this issue using a simple macro model consisting of output, prices, money, and interest rates. Using six different lag length selection criteria that vary the bias-efficiency tradeoff, they compare the policy inferences derived from the different estimations of the vector autoregressive model. The evidence shows that policy recommendations are quite sensitive to changes in the lag structure. Copyright 1991 by Oxford University Press.

Date: 1991
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Handle: RePEc:oup:ecinqu:v:29:y:1991:i:1:p:44-52