Question 1
) Consider the structural VAR model yt = ⇡ + ⇧yt1 + ut (1) ut = B✏t (2) ✏t ⇠ N(0, Ik) (3) Suppose all parameter values are known.
Define ei as a vector of dimensions k ⇥ 1 of entries zero, except for entry j which equals
. A researcher proposes to estimate impulse responses to shock j as follows: 0 = ⇡ + Bei, (4) 1 = ⇡ + 0, (5) 2 = ⇡ + 1, (6) . . .
(7) Discuss if you agree or disagree with this approach, and carefully explain yourer.
