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: C11 C3 E0 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2005-05-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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https://economics.sas.upenn.edu/sites/default/file ... ng-papers/05-018.pdf (application/pdf)

Related works:
Journal Article: ABCs (and Ds) of Understanding VARs (2007)
Working Paper: A,B,C's (and D's)'s for Understanding VARS (2006)
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)
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:05-018

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