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Vector Autoregressions

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  • James H. Stock
  • Mark W. Watson

Abstract

This paper critically reviews the use of vector autoregressions (VARs) for four tasks: data description, forecasting, structural inference, and policy analysis. The paper begins with a review of VAR analysis, highlighting the differences between reduced-form VARs, recursive VARs and structural VARs. A three variable VAR that includes the unemployment rate, price inflation and the short term interest rate is used to show how VAR methods are used for the four tasks. The paper concludes that VARs have proven to be powerful and reliable tools for data description and forecasting, but have been less useful for structural inference and policy analysis.

Suggested Citation

  • James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 101-115, Fall.
  • Handle: RePEc:aea:jecper:v:15:y:2001:i:4:p:101-115
    Note: DOI: 10.1257/jep.15.4.101
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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