nep-ets New Economics Papers
on Econometric Time Series
Issue of 2009‒09‒05
one paper chosen by
Yong Yin
SUNY at Buffalo

  1. Generalized Impulse Response Analysis: General or Extreme? By Hyeongwoo, Kim

  1. By: Hyeongwoo, Kim
    Abstract: This note discusses a pitfall of using the generalized impulse response function (GIRF) in vector autoregressive (VAR) models (Pesaran and Shin, 1998). The GIRF is general because it is invariant to the ordering of the variables in the VAR. The GIRF, in fact, is extreme because it yields a set of response functions that are based on extreme identifying assumptions that contradict each other, unless the covariance matrix is diagonal. With an empirical example, the present note demonstrates that the GIRF may yield quite misleading economic inferences.
    Keywords: Generalized Impulse Response Function; Orthogonalized Impulse Response Function; Vector Autoregressive Models
    JEL: C32 C13 C51
    Date: 2009–04

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