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st: panel VAR

From   Kit Baum <>
Subject   st: panel VAR
Date   Tue, 15 Nov 2005 19:09:48 -0500

Tang writes

Anybody has comments? I am a dummy at this stuff.

> . webuse grunfeld
> . mvreg invest mvalue kstock = L(1/2).invest L(1/2).mvalue L (1/2).kstock
> Smells like a panel; VAR to me... remember that VAR is just regression on the
> same set of lagged regressors for each of the dependent variables. This
> implmentation imposes the constraints that the coefficients do not differ
> across panels, but isn't that what a panel VAR implies?

A VAR Is merely the regression of y1,y2,..yn on P lags of y1,y2,..,yn. Since each regression has the same regressors the estimation is efficiently performed by OLS on each equation. mvreg takes account of the fact that (X'X)^{-1} need only be computed once in this case. If y1,...yn are organized as a panel, then the VAR says that y1(i) is regressed on y1(i),y2(i),..yn(i) and so on for each i. That is what the command above is doing: OLS of invest, mvalue, kstock on two lags of each of those variables. That is a VAR on panel data as far as I understand it.


Kit Baum, Boston College Economics

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