How do I interpret the Impulse Response reaction functions in the

P

Pantaleo

For those of you who are good in TIME SERIES ANALYSIS.

1. Please help me with interpreting the impulse response reaction functions
generated from estimating a VAR model. I understand the X-axis (vertical
line) represents the time period (months, quarters, years etc.). What does
the Y-axis (vertical line) represent? Is it percentage points, percentage
changes, unit change or what?
2. What about reading the function itself? Normally the interpretation goes
like – a one standard deviation shock (increase) in one variable (say money
supply) will cause another variable (say interest rate) to respond (
increase) by so much (reading from the Y-axis). Now what is this one
standard deviation in terms of percent point? i.e how do I convert the one
STD in to percentage point so that the interpretation would go like – one std
increase (which is so much percentage point increase) in money supply would
lead to so much increase/decrease (the amount shown in the Y-axis) in
interest rate. The point is one “standard deviation shock†sounds too
technical for most policy makers.
Thanks to all of you
 

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