Question about VAR object

[Slava Grigoras]

Hello.

I would like to know if it is possible to estimate a VAR object with exogenious variables, and how can you obtain the value of the log likelihood function of a VAR, directly from the VAR object.

Thank you.

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Slava Grigoras

[Jaromir Benes]

Hi Slava:

at the moment, you can't have exogenous variables. As a quick fix, you can estimate a VAR with those variables included, and impose zero restrictions on the respective elements of the transtion matrix A (to make the dynamics of the "exogenous" variables independent of the truly "endogenous" ones).

But VARs with exogenous variables are definitely on the list of future extensions.

As for log lik, there is currently only a loglik ratio test between two VARs available, or the various info criteria...

M.

[Anita Yang]

Hi Jaromir,

 

Could you please explain how to impose zero restrictions on the respective elements of the transition matrix A in more details?

Using your tutorial example, now I treat the third variable (ie. Y) as the exogenous variable to a 2nd-order VAR using two variables, R and PI. I have no idea what I should write after 'A=' in the estimate commend. Is the restriction expressed as a numerical value or a matrix? How should I relate it to the corresponding A matrix.

v = VAR();

[v,vdata] = estimate(v,d,{'R','PI','Y'},Inf,'order=',2,'A=',???)

 

 

Thanks a lot.

Anita

[Jaromir Benes]

Hi Anita

You need to create an NY-by-NY-by-P matrix, where NY is the number of variables in the VAR, and P is the order of the VAR (this is a transition matrix), and enter either an NaN for all coefficients that are to be freely estimated, or a particular number for those that are to be fixed.

In your example, let's say you want to restrict the coefficients A(1,2,1) and A(1,2,2) to zero, i.e. the effect of PI{-1} and PI{-2} on R.

You create the A matrix as follows

A = nan(3,3,2);

A(1,2,1) = 0;

A(1,2,2) = 0;

and call the estimate command as follows

[v,vdata] = estimate(v,d,{'R','PI','Y'},Inf,'order=',2,'A=',A);

Let me know whether this is clear enough...

Best

Jaromir

[Anita Yang]

Hello Jaromir,

 

I really appreciate your prompt reply. It seems clear to me now. I am pretty new to the IRIS-toolbox so I am afraid that I might be asking some basic questions you have actually answered before.

I would like to estimate a SVAR with cross-country data. As far as I understand your tutorial example, you only consider one time series data set. What should I do, say, if I want to pool data from 1990Q1 to 2004 Q4 of country A and of country B to do my estimation? (Which program file should I have read so I could see how to do modification?)

 

Best regards.

Anita  

[Jaromir Benes]

Don't worry :)

What exactly do you have in mind regarding the multiple country estimation exercise? Is it a panel-data kind of regression, or a hierarchical model, or simply combining two data sets? IRIS currently does not support any of those, but it'd be relatively easy to extend the functions to cover the last case (simply combining multiple data sets).

Let me know.

Best,

Jaromir

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[Anita Yang]

Hello Jaromir,

What I have in mind is to use data from multiple countries and combine them together to do estimation. More specifically, I obtain time series data from eight countries between 2000Q1 to 2010Q4 and then I want to run a reduced-form VAR system by OLS including country dummies. Do you think it's possible to extend the functions to cover this case?

Thanks.

Anita

[Jaromir Benes]

Possible, it is :) But I'm now rather busy, so can't really promise any delivery date.

Could you please create a feature request on the IRIS web site (go to the Issues section, create a New Issue, and select Feature Request, describing briefly what you want to do).

Best,

Jaromir

[Anita Yang]

I will do that. Thank you so much for all your help.

Anita