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A,B,C's (and D's)'s for Understanding VARS

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  • Jesús Fernández-Villaverde
  • Juan F. Rubio-Ramirez
  • Thomas J. Sargent
  • Mark 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. 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.

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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 321307000000000646.

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Date of creation: 08 Dec 2006
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Handle: RePEc:cla:levrem:321307000000000646

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    • Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2007. "Assessing Structural VARs," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 1-106 National Bureau of Economic Research, Inc.
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  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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