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Generalized Impulse Response Analysis: General or Extreme?

Hyeongwoo Kim ()

MPRA Paper from University Library of Munich, Germany

Abstract: This note discusses a pitfall of using the generalized impulse response function (GIRF) in vector autoregressive (VAR) models (Pesaran and Shin, 1998). The GIRF is general because it is invariant to the ordering of the variables in the VAR. The GIRF, in fact, is extreme because it yields a set of response functions that are based on extreme identifying assumptions that contradict each other, unless the covariance matrix is diagonal. With an empirical example, the present note demonstrates that the GIRF may yield quite misleading economic inferences.

Keywords: Generalized Impulse Response Function; Orthogonalized Impulse Response Function; Vector Autoregressive Models (search for similar items in EconPapers)
JEL-codes: C13 C32 C51 (search for similar items in EconPapers)
Date: 2009-04
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (15) Track citations by RSS feed

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https://mpra.ub.uni-muenchen.de/17014/1/MPRA_paper_17014.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/53951/8/MPRA_paper_53951.pdf revised version (application/pdf)

Related works:
Working Paper: Generalized Impulse Response Analysis: General or Extreme? (2012) Downloads
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