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A Back-of-the-Envelope Rule to Identify Atheoretical VARs

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Author Info

  • Urzúa, Carlos M.

    ()
    (Tecnológico de Monterrey, Campus Ciudad de México)

Abstract

This is the computer code companion of a paper with the same title, and whose abstract is as follows: Vector autoregressive models are often used in Macroeconomics to draw conclusions about the effects of policy innovations. However, those results depend on the researcher’s priors about the particular ordering of the variables. As an alternative, this paper presents a simple rule based on the Maximum Entropy principle that can be used to find the “most likely” ordering. The proposal is illustrated in the case of a VAR model of the U.S. economy. It is found that monetary policy shocks are better represented by innovations in the federal funds rate rather than by innovations in non-borrowed reserves.

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File URL: http://alejandria.ccm.itesm.mx/egap/documentos/CC-2007-01.txt
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Bibliographic Info

Software component provided by Tecnológico de Monterrey, Campus Ciudad de México in its series EGAP Computer Code with number 2007-01.

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Programming language: GAUSS
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Date of creation: Dec 2006
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Handle: RePEc:ega:comcod:200701

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Web page: http://www.ccm.itesm.mx/egap/
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Related research

Keywords: VAR; impulse-response functions; varimin; maximum entropy; monetary policy shocks; GAUSS;

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