Teaching Notes on Impulse Response Function and …

Teaching Notes on Impulse Response Functionand structural VARJin-Lung LinInstitute of Economics, Academia SinicaDepartment of Economics, National Chengchi UniversityMay 2, 20061 IntroductionStructural VAR embeds economic theory within time series models, providing aconvenient and powerful framework for policy analysis. Impulse Response func-tion (IRF) tracks the impact of any variable on others in the system. It is an essen-tial tool in empirical causal analysis and policy effectiveness analysis. This notereviews important concepts related to Impulse Response Function and Impulse Response functionLetYtbe ak-dimensional vector series generated byYt=A1Yt 1+ +ApYt p+Ut= (B)Ut= i=0 iUt i(1)I= (I A1B A2B ApBp) (B)(2)wherecov(Ut) = , iis the MA coefficients measuring the Impulse specifically, jk,irepresents the Response of variablejto an unit Impulse invariablekoccurringi-th period ago.

Teaching Notes on Impulse Response Function and Structural VAR Jin-Lung Lin Institute of Economics, Academia Sinica Department of Economics, National Chengchi University

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  Response, Structural, Functions, Impulse, Impulse response function and, Impulse response function and structural var

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