A, B, C's (and D)'s for Understanding Vars

49 Pages Posted: 6 Jul 2005

See all articles by Jesús Fernández-Villaverde

Jesús Fernández-Villaverde

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Juan Francisco Rubio-Ramirez

Federal Reserve Bank of Atlanta - Research Department

Thomas J. Sargent

New York University (NYU) - Department of Economics, Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)

Date Written: June 2005

Abstract

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.

Suggested Citation

Fernández-Villaverde, Jesús and Rubio-Ramirez, Juan Francisco and Sargent, Thomas J., A, B, C's (and D)'s for Understanding Vars (June 2005). NBER Working Paper No. t0308. Available at SSRN: https://ssrn.com/abstract=734044

Jesús Fernández-Villaverde

University of Pennsylvania - Department of Economics ( email )

3718 Locust Walk
160 McNeil Building
Philadelphia, PA 19104
United States
215-898-1504 (Phone)
215-573-2057 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Juan Francisco Rubio-Ramirez

Federal Reserve Bank of Atlanta - Research Department ( email )

1000 Peachtree Street, NE
Atlanta, GA 30309-4470
United States
404-498-8057 (Phone)
404-498-8956 (Fax)

HOME PAGE: http://www.econ.umn.edu/~rubio

Thomas J. Sargent (Contact Author)

New York University (NYU) - Department of Economics, Leonard N. Stern School of Business ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-3548 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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