A, B, C's (and D)'s for Understanding VARs
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The dynamics of a linear (or linearized) dynamic stochastic economic model can be expressed in terms of matrices (A,B,C,D) that define a state space system. An associated state space system (A,K,C,Sigma) determines a vector autoregression for observables available to an econometrician. We review circumstances under which the impulse response of the VAR resembles the impulse response associated with the economic model. We give four examples that illustrate a simple condition for checking whether the mapping from VAR shocks to economic shocks is invertible. The condition applies when there are equal numbers of VAR and economic shocks.
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Professor of Economics
Professor Rubio-Ramirez conducts research within the fields of dynamic equilibrium macroeconomic models and time series econometrics. Lately he has also being working on international economic issues, the relationship between volatility and macroeconomic fluctuations, and finance issues. His current works-in-progress include the projects entitled, “Fortune or Virtue: Time-Variant Volatilities Versus Parameter Drifting in U.S. Data,” “The Term Structure of Interest Rates in a DSGE Model with Recu
This author no longer has a Scholars@Duke profile, so the information shown here reflects their Duke status at the time this item was deposited.