Abstract

http://ssrn.com/abstract=583282
 
 

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Vector Autoregressions, Policy Analysis, and Directed Acyclic Graphs: An Application to the U.S. Economy


Titus O. Awokuse


University of Delaware - Department of Applied Economics and Statistics

David Bessler


Texas A&M University, College Station - Department of Agricultural Economics


Journal of Applied Economics, Vol. 6, No. 1, pp. 1-24, May 2003

Abstract:     
The paper considers the use of directed acyclic graphs (DAGs), and their construction from observational data with PC-algorithm TETRAD II, in providing over-identifying restrictions on the innovations from a vector autoregression. Results from Sims' 1986 model of the US economy are replicated and compared using these data-driven techniques. The directed graph results show Sims' six-variable VAR is not rich enough to provide an unambiguous ordering at usual levels of statistical significance. A significance level in the neighborhood of 30% is required to find a clear structural ordering. Although the DAG results are in agreement with Sims' theory-based model for unemployment, differences are noted for the other five variables: income, money supply, price level, interest rates, and investment. Overall the DAG results are broadly consistent with a monetarist view with adaptive expectations and no hyperinflation.

Keywords: Vector autoregression, directed graphs, policy analysis

JEL Classification: C1, E1

Accepted Paper Series





Not Available For Download

Date posted: August 30, 2004  

Suggested Citation

Awokuse, Titus O. and Bessler, David, Vector Autoregressions, Policy Analysis, and Directed Acyclic Graphs: An Application to the U.S. Economy. Journal of Applied Economics, Vol. 6, No. 1, pp. 1-24, May 2003. Available at SSRN: http://ssrn.com/abstract=583282

Contact Information

Titus O. Awokuse (Contact Author)
University of Delaware - Department of Applied Economics and Statistics ( email )
531 South College Ave
Newark, DE 19716
United States
302-831-1323 (Phone)
302-831-6243 (Fax)
HOME PAGE: http://www.udel.edu/FREC/awokuse/web/TOA_Homepage.htm
David Bessler
Texas A&M University, College Station - Department of Agricultural Economics ( email )
College Station, TX 77840
United States
979-845-3096 (Phone)
Feedback to SSRN


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