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st: re: irf: change innovation

From   Kit Baum <>
Subject   st: re: irf: change innovation
Date   Mon, 20 Oct 2008 07:36:36 -0400

Nadine said

I want to create an irf for a negative innovation. I read that the standard innovation is a positive one-unit shock and I was wondering whether/ how it
is possible to change the type of the innovation?

For a linear IRF, or impulse response function (which will be forthcoming from a linear VAR) the effect of (k x \sigma) is k times the effect of 1 \sigma, where k is any real number (including -1). Thus one can calculate the effect of any scaling of the standard +1 \sigma shock from the reported IRF.

Nonlinear IRFs (resulting from nonlinear models) generally require something like Monte Carlo simulation, as with a nonlinear IRF the magnitude of (k x \sigma) is not predictable from +1 \sigma. The IRF may be asymmetric. For something along these lines see Baum, Caglayan, Ozkan, J Applied Econometrics 2004, available in working paper form (BC EC WP 488) from my homepage below.

Kit Baum, Boston College Economics and DIW Berlin
An Introduction to Modern Econometrics Using Stata:e

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