Vector autoregressions and reality
The statistical significance of variance decompositions and impulse response functions for unrestricted vector autoregressions is questionable. Most previous studies are suspect because they have not provided confidence intervals for variance decompositions and impulse response functions. Here two methods of computing such intervals are developed, one using a normal approximation, the other using bootstrapped resampling. An example from Sims’ work illustrates the importance of computing these confidence intervals. In the example, the 95 percent confidence intervals for variance decompositions span up to 66 percentage points at that usual forecasting horizon.
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert B. Litterman, 1985.
"Forecasting with Bayesian vector autoregressions five years of experience,"
274, Federal Reserve Bank of Minneapolis.
- Litterman, Robert B, 1986. "Forecasting with Bayesian Vector Autoregressions-Five Years of Experience," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 25-38, January.
- Fair, Ray C, 1979.
"An Analysis of the Accuracy of Four Macroeconometric Models,"
Journal of Political Economy,
University of Chicago Press, vol. 87(4), pages 701-18, August.
- Ray C. Fair, 1978. "An Analysis of the Accuracy of Four Macroeconometric Models," Cowles Foundation Discussion Papers 492, Cowles Foundation for Research in Economics, Yale University.
- Stanley Fischer, 1981. "Relative Shocks, Relative Price Variability, and Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 381-442.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 283-308, November.
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