Impulse Response Analysis and Forecast Error Variance Decomposition in SVAR Modeling
The impulsetechnique of response analysis, first introduced in VAR modeling by Sims q P 1980 is a descriptive device representing the reaction of each variable to a shock in each equation of the system. “In order to be able to see the distinct pattern of movement the system may display” (Sims 1980, p. 21), the shocks must obviously be orthogonal.
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