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Homework answers / question archive / In a VAR model, name the method of analysing the proportion of the movements in the dependent variables that are due to their “own” shocks, versus shocks to the other variables
In a VAR model, name the method of analysing the proportion of the movements in the dependent variables that are due to their “own” shocks, versus shocks to the other variables. [1]
The variance decomposition gives the proportion of the movements in dependent variables, which are the result of their own shocks and the other variables’ shocks. The variance decomposition determines how much of the n-step-ahead forecast error variance of a given variable is explained through innovations of each variable.
