EC 823: Applied Econometrics

VAR, SVAR and VECM modelsChristopher F BaumEC 823: Applied EconometricsBoston college , Spring 2013 Christopher F baum (BC / DIW)VAR, SVAR and VECM modelsBoston college , Spring 20131 / 61 Vector autoregressive modelsVector autoregressive (VAR) modelsAp-th order vector autoregression, orVAR(p), with exogenousvariablesxcan be written as:yt=v+A1yt 1+ +Apyt p+B0xt+B1Bt 1+ +Bsxt s+utwhereytis a vector ofKvariables, each modeled as function ofplagsof those variables and, optionally, a set of exogenous assume thatE(ut) =0,E(utu t) = andE(utu s) =0 t6= F baum (BC / DIW)VAR, SVAR and VECM modelsBoston college , Spring 20132 / 61 Vector autoregressive modelsIf the VAR is stable (see commandvarstable) we can rewrite theVAR in moving average form as:yt= + i=0 Dixt i+ i=0 iut iwhich is the vector moving average (VMA) representation of the VAR,where all past values ofythave been substituted out.

VAR, SVAR and VECM models Christopher F Baum EC 823: Applied Econometrics Boston College, Spring 2013 Christopher F Baum (BC / DIW) VAR, SVAR and VECM models Boston College…

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