Summary
Vector autoregressive (VAR) models are capable of capturing the dynamic structure of many time series variables. Impulse response functions are typically used to investigate the relationships between the variables included in such models. In this context the relevant impulses or innovations or shocks to be traced out in an impulse response analysis have to be specified by imposing appropriate identifying restrictions. Taking into account the cointegration structure of the variables offers interesting possibilities for imposing identifying restrictions. Therefore VAR models which explicitly take into account the cointegration structure of the variables, so-called vector error correction models, are considered. Specification, estimation and validation of reduced form vector error correction models is briefly outlined and imposing structural short- and long-run restrictions within these models is discussed.
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I thank an anonymous reader for comments on an earlier draft of this paper that helped me to improve the exposition.
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Lütkepohl, H. Structural vector autoregressive analysis for cointegrated variables. Allgemeines Statistisches Arch 90, 75–88 (2006). https://doi.org/10.1007/s10182-006-0222-4
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DOI: https://doi.org/10.1007/s10182-006-0222-4