Vector autoregressive model

What is VAR models?

There should no distinction between endogenous and exogenous variables and its general reduced form equations has the same set of regulations which leads to the develop of VAR models.

when we are not confident that a variable really is a genius each variable has to be recreated symmetrically. For example

yᵣ=B₁₀-B₁₂ˣᵣ+Y₁₁yᵣ-₁+y₁₂ˣᵣ-₁+uyᵣ

xᵣ=B₂₀-B₂₁yᵣ+y₂₁yᵣ-₁+y₂₂ˣᵣ-1+uₓᵣ

The time series yᵣ that is affected by current and past values of xᵣ and, simultaneously, the time series xᵣ to be a series that is affected by current and past values of the yᵣ series.

What is pros and cons of the VAR model?

VAR model is very simple. The eco normal does not have to worry about which variables are endogenous and exogenous. Other estimation is also so very simple in the sense that each equation can be estimated separately with the usual OLS method.last, forcast optane from v a r models are in most cases better than those obtained from the far more complex simultaneous equation models.

VAR model are atheoretic, they are not based on any economic theory. Initially there are no restrictions on any of the parameters under estimations in effect everything cause is everything.statistical inference is often used in the estimated models so that some coefficient that appear to be in significant can be dropped in other to lead to models that might have an underlying consistent theory.

Second criticism concerned with the loss of degree of freedom. If we suppose that we have three variables VAR model and decide to include 12 legs for each variables in each equation this will Intel the estimation of 36 parameters in each equation Plus the equation constant.