chartwel wrote:dakila wrote:No. You cannot interpret like that. First define the shock by the sign restriction, then interpret impulse response function of Y and X as the effect of that shock.
That makes perfect sense. Thanks for the clarification, it is all clear now.
I am sorry if I’m also being silly, but I have the same question and I did not understand the answer. For example, in a 3 variable VAR if you set +3 as a constraint, what exactly are you constraining? I think you are constraining the RESPONSE of the third variable to be positive. But the response to what shock?? If, let’s say, I want to constrain the response of the THIRD variable to a shock on the SECOND variable to be positive, how do I use the addin to perform this? Again, sorry if this is a silly question, but I’ve read the instructions and it is not clear to me. Thank you very much.