Interpreting impulse response functions: Std dev or % ?

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tareb
Posts: 1
Joined: Mon Jul 23, 2018 6:59 am

Re: Interpreting impulse response functions: Std dev or % ?

Postby tareb » Mon Jul 23, 2018 8:31 am

Hi,

Appologies in advance if my question are very basic, however, i would highly appriciate your feedback.

I am estimating a VAR with Choleski approach. My variables are Bond Yields, Interest Rates on Loan, Investments (growth rates) and GDP growth rates. After i run a VAR and interpreting the IRF i want to have instead of STD the shock to be in %.

1. When STD is used, can i say that one STD is equal to 1% of the dependent variable (in my case Bond Yields)?
2. When using SIRF add-in, what should i include in Impulse variable dialogue box? After i try many option, i get "0 is not a valid index for vector-series-coefficient FAC_DIAG18.

Also, if i am interested only in variable relationships, can i ignor alltogeather the interpretation of coefficents - irespective of their definition in levels of log-levels?

Many thanks,
Tareb

dakila
Posts: 370
Joined: Tue Nov 24, 2015 4:57 pm

Re: Interpreting impulse response functions: Std dev or % ?

Postby dakila » Wed Jul 25, 2018 8:56 pm

1. When STD is used, can i say that one STD is equal to 1% of the dependent variable (in my case Bond Yields)?

No.
2. When using SIRF add-in, what should i include in Impulse variable dialogue box?

Just put one variable, for example just put bond yield variable. Multiple variables are not allowed.
Also, if i am interested only in variable relationships, can i ignor alltogeather the interpretation of coefficents - irespective of their definition in levels of log-levels?

Yes.

Berat
Posts: 6
Joined: Fri Dec 09, 2016 8:23 am

Re: Interpreting impulse response functions: Std dev or % ?

Postby Berat » Thu Jul 26, 2018 3:57 am

Many thanks, Dakila for the reply, highly appreciated.

When STD are used, what is measured on the horizontal axes of the IRF graph? And also, how would one comment the graph in this case - not just the relationship but in terms of the size of the impact?

Thank you very much.

dakila
Posts: 370
Joined: Tue Nov 24, 2015 4:57 pm

Re: Interpreting impulse response functions: Std dev or % ?

Postby dakila » Thu Jul 26, 2018 4:33 am

It depends on your variable unit. For example, if the bond yield is in % then the horizontal axes is measured in %

Berat
Posts: 6
Joined: Fri Dec 09, 2016 8:23 am

Re: Interpreting impulse response functions: Std dev or % ?

Postby Berat » Tue Dec 25, 2018 8:43 am

Hi Dakila,

I am still struggling with my interpretation of the PVAR model.

With Choleski decomposition, my variable order is Government Bond Yield (in percentage), Loans to Non-Financial Corporations (in percentage), investment growth rates and GDP growth rates.

The IRF derived are with one STD shock, however, for policy recommendation purposes I want to know the size of 1 STD in terms of my variables in the system. So instead of interpreting 1 STD shock in Government bond yield, i would like to know the 1 STD in terms of my variable Government Bond Yield.

I would appreciate so much your help and you time and so sorry for these basic question.

Berat


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