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Alternative specification, estimation and identification of vector autoregressions
[Alternativní specifikace, odhad a identifikace vektorových autoregresí]

Author

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  • Roman Hušek
  • Tomáš Formánek

Abstract

The article focuses on various aspects of specification, estimation and identification of vector autoregression (VAR) models. Key VAR-specific topics of verification of an estimated model are also covered, as well as the differences between a standard (unrestricted) and structural VAR model. Subsequently, we address theoretical properties and practical aspects of impulse response functions (IRFs) as calculated upon estimated VAR models. Topics such as Cholesky decomposition (CHD), orthogonalised and generalised IRFs are discussed. Properties of VAR models are compared against alternative econometric modelling tools, such as simultaneous equation models and dynamic stochastic general equilibrium (DSGE) models. The article is supplemented with an illustrative example: on an aggregated EMU-wide level, we estimate a VAR (2) model for real GDP, CPI and PPI inflation. IRFs are calculated using two different CHD orderings and compared to generalised IRFs. We find the IRFs from our illustrative model to be very robust against the chosen IRF calculation method and against equation ordering changes.

Suggested Citation

  • Roman Hušek & Tomáš Formánek, 2014. "Alternative specification, estimation and identification of vector autoregressions [Alternativní specifikace, odhad a identifikace vektorových autoregresí]," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2014(4), pages 52-72.
    • Handle: RePEc:prg:jnlaop:v:2014:y:2014:i:4:id:446:p:52-72
    DOI: 10.18267/j.aop.446
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    More about this item

    Keywords

    Vector autoregression; impulse response functions; estimation; identification; specification;
    All these keywords.

    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
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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