A Back-of-the-Envelope Rule to Identify Atheoretical VARs
AbstractThis 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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Bibliographic InfoSoftware component provided by Tecnológico de Monterrey, Campus Ciudad de México in its series EGAP Computer Code with number 2007-01.
Programming language: GAUSS
Date of creation: Dec 2006
Date of revision:
VAR; impulse-response functions; varimin; maximum entropy; monetary policy shocks; GAUSS;
Other versions of this item:
- Urzúa, Carlos M., 2007. "A Back-of-the-Envelope Rule to Identify Atheoretical VARs," EGAP Working Papers 2007-03, Tecnológico de Monterrey, Campus Ciudad de México.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C87 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Econometric Software
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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