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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 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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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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  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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