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A Back-of-the-Envelope Rule to Identify Atheoretical VARs

Author

Listed:
  • Urzúa, Carlos M.

    (Tecnológico de Monterrey, Campus Ciudad de México)

Programming Language

GAUSS

Abstract

This is the computer code companion of a paper with the same title, and whose abstract is as follows: Vector autoregressive models are often used in Macroeconomics to draw conclusions about the effects of policy innovations. However, those results depend on the researcher’s priors about the particular ordering of the variables. As an alternative, this paper presents a simple rule based on the Maximum Entropy principle that can be used to find the “most likely” ordering. The proposal is illustrated in the case of a VAR model of the U.S. economy. It is found that monetary policy shocks are better represented by innovations in the federal funds rate rather than by innovations in non-borrowed reserves.

Suggested Citation

  • Urzúa, Carlos M., 2006. "A Back-of-the-Envelope Rule to Identify Atheoretical VARs," EGAP Computer Code 2007-01, Tecnológico de Monterrey, Campus Ciudad de México.
    • Handle: RePEc:ega:comcod:200701
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    File URL: http://alejandria.ccm.itesm.mx/egap/documentos/CC-2007-01.txt
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    More about this item

    Keywords

    VAR; impulse-response functions; varimin; maximum entropy; monetary policy shocks; GAUSS; GAUSS;
    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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C87 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Econometric Software
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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