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Posted: **Wed Mar 25, 2015 3:22 am**

Hi Everyone,

I have a large multi-equation model. Not VAR, just OLS regression equations and identities put together as model. I would like to plot sth similar to an impulse reaction function in VAR. On X-axis I would have time, and on Y-axis a change of particular variable in response to a shock of an exegenous variable.

I do not want to compare alternative scenarios (in the forecast sample) but see the IRF. But I cannot seem to find such an option. How to do it?

I know that it can be done. Many central banks do it, while presenting their projections.

I'm using Eviews 8.

Posted: **Thu Mar 26, 2015 5:08 am**

I cannot see the use of impulse response analysis (IRA) unless there is a dynamic model which would help shocks propagate throughout the system. I am fairly sure that every central bank relies on some sort of a (S)VAR or a DSGE model for producing the forecasts.

If you have dynamic regression models instead, then the "Model" object in EViews may still come handy as you can use scenarios to serve the purpose. The example below compares the results of two IRAs from an AR(1) model and its dynamic regression counterpart for the univariate case:

Code: Select all

'Generate data
wfcreate u 275
smpl @first @first
series y = nrnd
smpl @first+1 250
series y = 0.8*y(-1) + nrnd
smpl @all

'Estimate an AR(1) model and carry out Impulse Response Analysis (IRA)
equation eqar.ls y c ar(1)
freeze(mode=overwrite,restab) eqar.arma(type=imp, imp=1,hrz=25,t,save=resmat)

'Estimate the model as a dynamic regression
equation eqls.ls y c y(-1)

'Make model from the OLS equation
eqls.makemodel(mymod)

'Assign an equation add-factor and initialize to zero
mymod.addassign(v, c) @stochastic
series y_a = 0

'Create unit shock
smpl 250 250
series y_a_1 = 1
smpl 251 @last
y_a_1 = 0

'Dynamically solve the model for the same horizon as IRA
smpl 250 275
mymod.scenario "scenario 1"
mymod.override y_a
mymod.solveopt(a=t)
mymod.solve

'Compute the difference between actual and baseline scenarios
series modshock = y_1 - y_0

'Extract the response values from the matrix saved in AR(1) model
vector vtemp = @columnextract(resmat,1)
mtos(vtemp,arresponse)

'Compare the results
line modshock arresponse

smpl @all

Other than that, I cannot think of anything specific about what you are asking. It seems you already know how to create an alternative scenario and compare the results of two forecasts in the case of a shock to an exogenous variable. And to me, this is exactly what you should do, if you just want to see the impact of various types of changes in an exogenous variable.

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Impulse response in multi-equation model

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