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POLICY INFERENCE USING VAR MODELS
Author(s) -
Hafer R. W.,
Sheehan Richard G.
Publication year - 1991
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1991.tb01251.x
Subject(s) - econometrics , economics , lag , macro , indirect inference , inference , model selection , interest rate , monetary policy , sensitivity (control systems) , selection (genetic algorithm) , statistics , mathematics , computer science , macroeconomics , computer network , estimator , artificial intelligence , electronic engineering , programming language , engineering
There has been relatively little systematic investigation of the sensitivity of policy inferences derived from VAR models to changes in the lag structure. We investigate this issue using a simple macro model consisting of output, prices, money and interest rates. Using six different lag length selection criteria that vary the bias‐efficiency tradeoff, we compare the policy inferences derived from the different estimations of our VAR model. The evidence shows that policy recommendations are quite sensitive to changes in the lag structure.