Estimation of SVAR with debt identity
Posted: Thu Sep 08, 2022 9:57 am
Hi,
I am trying to conduct the fiscal policy impact analysis using Favero & Giavazzi (Debt and the effects of fiscal policy, 2007), where the system of equations include debt identity. As per the base paper the presence of the intertemporal budget constraint makes computing the
responses of the variables different, through the following steps: i. generate a baseline simulation for all variables by solving dynamically forward (this requires setting to zero all shocks for a number of periods equal to the horizon up to which impulse responses are needed), ii. then generate an alternative simulation for all variables by setting to one
just for the first period of the simulation—the structural shock of interest, and then solve dynamically forward the model up to the same horizon used in the baseline simulation, iii. compute impulse responses to the structural shocks as the difference
between the simulated values in the two steps above.
I would be so grateful if someone help me to estimate the impulse response using the method stated above. Thank you
Regards,
I am trying to conduct the fiscal policy impact analysis using Favero & Giavazzi (Debt and the effects of fiscal policy, 2007), where the system of equations include debt identity. As per the base paper the presence of the intertemporal budget constraint makes computing the
responses of the variables different, through the following steps: i. generate a baseline simulation for all variables by solving dynamically forward (this requires setting to zero all shocks for a number of periods equal to the horizon up to which impulse responses are needed), ii. then generate an alternative simulation for all variables by setting to one
just for the first period of the simulation—the structural shock of interest, and then solve dynamically forward the model up to the same horizon used in the baseline simulation, iii. compute impulse responses to the structural shocks as the difference
between the simulated values in the two steps above.
I would be so grateful if someone help me to estimate the impulse response using the method stated above. Thank you
Regards,