Abstract
The previous chapter presented a statistical approach to analyse the relations between time series: starting with univariate models, we asked for relations that might exist between two time series. Subsequently, the approach was extended to situations with more than two time series. Such a procedure where models are developed bottom up to describe relations is hardly compatible with the economic approach of theorising where — at least in principle — all relevant variables of a system are treated jointly. For example, starting out from the general equilibrium theory as the core of economic theory, all quantities and prices in a market are simultaneously determined. This implies that, apart from the starting conditions, everything depends on everything, i.e. there are only endogenous variables. For example, if we consider a single market, supply and demand functions simultaneously determine the equilibrium quantity and price.
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Kirchgässner, G., Wolters, J. (2007). Vector Autoregressive Processes. In: Introduction to Modern Time Series Analysis. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-73291-4_4
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DOI: https://doi.org/10.1007/978-3-540-73291-4_4
Publisher Name: Springer, Berlin, Heidelberg
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