MACROECONOMETRICS

1
MACROECONOMETRICS

• LAB 4 VARs and VECMs

2
ROADMAP

• Everything is by definition linked with
  everything?
• Estimating VARs
• Estimation and forecasting
• IRF
• VECM
• All about STATA ?

3
Dataset

• Timing
• Quarterly data, Jan. 1995 Dec. 2004
• Data
• GDP
• Consumption
• GDP deflator
• M3
• Quarter dummies

4
STATA (1)

• set memory 99m
• set matsize 800
• Open downloaded file
• Generate real variables
• Real GDP gen rGDPGDP/def_CPI
• Real consumption
• Generate logs (same way)
• Log (realGDP)
• Log (realconsumption)
• Log (def_CPI)
• Log (m3)

5
STATA (2)

• Graphing
• twoway (line lrpkb lrconsumption if
  dateltq(2004.4))
• (or alternatively, using the menu)
• twoway (line lm3 ldef_CPI if dateltq(2004.4))
• (or alternatively, using the menu)
• VARs
• var lrpkb ldef_CPI lrconsumption lm3, exog(_q)

6
STATA (3)

• Diagnosis
• Testing for number of lags
• varsoc variables, maxlag(3)
• Testing for VAR stability
• varstable
• Testing for Granger causality
• vargranger
• Testing for autocorrelation
• varlmar

7
STATA (4)

• Impulse-response functions
• Starting
• cap irf drop
• Creating (Option 1)
• varbasic lrpkb lrconsumption ldef_CPI lm3 if
  dateltq(2004q4), lags(1/3)
• Creating (Option 2)
• varirf create irf, set(irf, replace)
• varirf graph irf, i(lrpkb) r(lrconsumption) /
  UNIQUE SHOCK/
• AND
• varirf graph oirf, i(lrpkb) r(lrconsumption)
  /ORTHOGONAL SHOCK/

8
STATA (5)

• Forecasting
• Computing
• varfcast compute, step(8) dynamic(q(2005.1))
• Graphing
• varfcast graph lrconsumption ldef_CPI lm3 lrpkb

9
STATA (6)

• No. of cointegrating relations
• (Johansen trace test for the rank)
• vecrank lrconsumption ldef_CPI lrpkb lm3,
  sindicators(_q) lags(3)

10
STATA (7)

• VECM
• vec lrconsumption ldef_CPI lrpkb lm3, rank(3)
  sindicators(_q) lags(2)
• REMEMBER
• Cointegrating vectors not interpretable
• Testing for stability
• vecstable
• Testing for autocorrelation
• veclmar

11
STATA (8)

• Testing for long run relationships
• (examples the same as in the lecture)
• constraint 1 _ce1lrconsumption-1
• constraint 2 _ce1ldef_CPI
• constraint 3 _ce1lm3
• constraint 4 _ce2lm3-1
• constraint 5 _ce2lrconsumption
• constraint 6 _ce2ldef_CPI1
• constraint 7 _ce2lrpkb1
• vec lrconsumption ldef_CPI lrpkb lm3, rank(2)
  sindicators(_q) lags(3) dforce bconstraints(1/7)