Open AccessVector Autoregressions
Author(s) -
James H. Stock,
Mark W. Watson
Publication year - 2001
Publication title -
the journal of economic perspectives/the journal of economic perspectives
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 9.614
H-Index - 196
eISSN - 1944-7965
pISSN - 0895-3309
DOI - 10.1257/jep.15.4.101
Subject(s) - vector autoregression , econometrics , inference , inflation (cosmology) , economics , bayesian vector autoregression , indirect inference , monetary policy , interest rate , variable (mathematics) , unemployment , macroeconomics , computer science , statistics , mathematics , artificial intelligence , bayesian probability , mathematical analysis , physics , estimator , theoretical physics
This paper critically reviews the use of vector autoregressions (VARs) for four tasks: data description, forecasting, structural inference, and policy analysis. The paper begins with a review of VAR analysis, highlighting the differences between reduced-form VARs, recursive VARs and structural VARs. A three variable VAR that includes the unemployment rate, price inflation and the short term interest rate is used to show how VAR methods are used for the four tasks. The paper concludes that VARs have proven to be powerful and reliable tools for data description and forecasting, but have been less useful for structural inference and policy analysis.