Classical versus VAR econometrics: the Janus head effect in economic dynamic modelling

Maria Zoia

Rivista Internazionale di Scienze Sociali, 2009, vol. 117, issue 1, 113-124

Abstract: The aim of this paper is that of giving a finer insight into the analytic foundations of vector autoregressive models (VAR) in comparison with classical econometric models. To this end we show the links between the techniques of structural and VAR model building on the one hand, and the econometric profiles of dynamic modelling on the other. The solutions engendered by both approaches, which share a common difference-equation ancestry, call for a matrix polynomial inversion by either Taylor or Laurent expansions. The former is true for classical econometrics, where unit roots are ruled out, whereas the latter comes to the fore in time-series econometrics, with unit roots and cointegration as an added value. The derivation of the intended result, as well as the econometric interpretation of the solutions, rest on a neat algebraic and statistical apparatus.

Keywords: Structural Model; Final Form; VAR Model; Representation Theorem (search for similar items in EconPapers)
JEL-codes: C30 C32 C50 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:vep:journl:y:2009:v:117:i:1:p:113-124

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