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Model reduction in dynamical VAR systems

Author

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  • Kbiri, Mohammed Alaoui
  • Ghassan, Hassan Belkacem

Abstract

In this paper, we propose an alternative method that applies the model reduction techniques to the VAR framework when the number of variables is sufficiently large. The relevance of the model reduction in the VAR and SVAR systems comes from that the new trajectories preserve the qualitative properties of the initial trajectories. In economic analysis, this allows us to apprehend the underlying phenomena. Also, the resulting model is accurate, computationally less expensive, and based on the real meaning of the system.

Suggested Citation

  • Kbiri, Mohammed Alaoui & Ghassan, Hassan Belkacem, 2019. "Model reduction in dynamical VAR systems," MPRA Paper 122971, University Library of Munich, Germany, revised 2020.
    • Handle: RePEc:pra:mprapa:122971
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    File URL: https://mpra.ub.uni-muenchen.de/122971/1/MPRA_paper_122971.pdf
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    References listed on IDEAS

    as
    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    2. Ben S. Bernanke & Jean Boivin & Piotr Eliasz, 2005. "Measuring the Effects of Monetary Policy: A Factor-Augmented Vector Autoregressive (FAVAR) Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(1), pages 387-422.
    3. King, Robert G. & Plosser, Charles I. & Stock, James H. & Watson, Mark W., 1991. "Stochastic Trends and Economic Fluctuations," American Economic Review, American Economic Association, vol. 81(4), pages 819-840, September.
    4. Hassan Belkacem Ghassan & Mohammed Souissi & Mohammed Kbiri Alaoui, 2009. "An Alternative Identification of the Economic Shocks in SVAR Models," Economics Bulletin, AccessEcon, vol. 29(2), pages 1019-1026.
    5. James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 101-115, Fall.
    6. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Complexity; Dynamic system; Dimension reduction; Economic analysis; Reduced VAR; Reduced structural VAR.;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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