Impulse Responses. Unit Shocks with Structural Decomp.

[abossie]

I feel like I must be missing something obvious. But is it possible to specify impulse response shocks other than 1 S.D. shocks when using a SVAR (structural decomposition) in Eviews 7.0? That is, I want to specify a 1% shock to government spending and trace its effect on several variables (GDP, Inflation, Fed Funds, etc) but my identification scheme is more complex than a Cholesky decomposition.

Anyway, It makes it easier and more straight forward to think about the multiplier when talking about shocks in percentage terms so I was hoping there was an easy way to do this.

[EViews Glenn]

If I understand your question, unfortunately not using the single radio button.

You can, however, always use the estimated factorization and the user-specified impulse response option to generate the desired impulses from innovations, or you can provide user-specified shocks to the residuals.

[abossie]

I guess my question was: How do I combine my structural decomposition with a user specified shock to the residual?

*edit* or I guess, is such a thing possible with the graphical interface?

[EViews Glenn]

Do you want the shock to the residual or to the innovation from the structural decomposition?

The residual, you don't really need to do any work as the user-specified shocks are residual shocks. To do a shock to the innovation, you'll need to extract the A and B decomposition matrices from the VAR object, and then feed your innovation shock through them to get residual s hocks.

[arthur]

Hi all,

Gentlemen, I have a question that can seem to be primitive.
What is the difference between static forecast and impulse response?

[MaartenG]

Dear EViews Glenn,
Dear EViews Users,

if I get it right, I should follow this sequence in order to induce simultaneous shocks to the innovations in an SVAR model:

- estimate the VAR model
- estimate the structural factorization
- extract the A and B matrices, and calculate (A^-1)*B
- use the calculated elements to induce the shock

Say that I have a VAR with three endogenous variables, of which the latter two have an immediate effect on the first one. My A-matrix hence contains non-zero elements for a11,a12,a13, a22 and a33. My B-matrix is restriced to a diagonal matrix. The resulting matrix M=(A^-1)*B consequently has the same "shape" as my A matrix. To induce a simultaneous shock to the innovations (the latter two variables), I specify a user-specified shock which has the form of a 3x1 matrix, with the following elements:

m12+m13
m22
m33

Can you, or anyone else, confirm that this is the right way to induce a simultaneous shock to the innovations in an SVAR model in EViews?

Thanks!

Maarten

[PJ2505]

Dear Eviews users/ Gareth/ Glenn,

Following the discussion on this topic, can someone please explain how to do the "use the calculated elements and induce a shock" part (also referred to as "feed your innovation shock through them" part) after I have obtained my VAR residuals, then estimated the structural factorization and obtained my two matrices- A and B and also calculated (A^-1)*B. I have a 4-variable VAR with budget deficit, GDP, Inflation and Interest rates. I want to find the effect of a -1% shock to the structural innovation of the budget deficit on all other variables. (shock to the innovation of only 1 variable) In desperate need of help! My lecturers said they are unable to help since this is not covered in our material for a Bachelors degree.

Thank you,

Elena