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ABCs (and Ds) of Understanding VARs

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  • Jesús Fernández-Villaverde
  • Juan F. Rubio-Ramírez
  • Thomas J. Sargent
  • Mark W. Watson

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 for a vector of observables. An associated state space system (A,ˆB,C,ˆD) determines a vector autoregression for those same observables. We present a simple condition for checking when these two state space systems match up and when they do not when there are equal numbers of economic and VAR shocks. We illustrate our condition with a permanent income example. (JEL C32, E32)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.97.3.1021
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 3 (June)
Pages: 1021-1026

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Handle: RePEc:aea:aecrev:v:97:y:2007:i:3:p:1021-1026

Note: DOI: 10.1257/aer.97.3.1021
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Matching Theory and Data: Bayesian Vector Autoregression and Dynamic Stochastic General Equilibrium Models
    by Christian Zimmermann in NEP-DGE blog on 2009-09-27 01:45:04
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  1. Advanced Monetary Theory and Policy (ECON 447)

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