VAR Models as Structural Approximations

26 Pages Posted: 5 Jul 2004

See all articles by Ray C. Fair

Ray C. Fair

Yale University - Cowles Foundation; Yale School of Management - International Center for Finance

Date Written: 1988

Abstract

This paper presents a way of estimating how accurate VAR models are likely to be for answering structural questions. Data are generated from a dynamic deterministic solution of a structural model; a VAR model is estimated using a subset of these data; and the properties of the VAR model are compared to the properties of the structural model. This procedure has the advantage of eliminating the effects of error terms, since the data are generated from a deterministic simulation. The results show that the VAR models do not seem to be good structural approximations.

Suggested Citation

Fair, Ray C., VAR Models as Structural Approximations (1988). NBER Working Paper No. w2495. Available at SSRN: https://ssrn.com/abstract=330304

Ray C. Fair (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3715 (Phone)
203-432-6167 (Fax)

HOME PAGE: http://fairmodel.econ.yale.edu

Yale School of Management - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States
203-432-3715 (Phone)
203-432-6167 (Fax)

HOME PAGE: http://fairmodel.econ.yale.edu

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