Working Paper

An Introduction into the SVAR Methodology: Identification, Interpretation and Limitations of SVAR models

Author

  • Jan Gottschalk
Publication Date

This paper aims to provide a non-technical introduction into the SVAR methodology. Particular emphasize is put on the approach to identification in SVAR models, which is compared to identification in simultaneous equation models. It is shown that SVAR models are useful tools to analyze the dynamics of a model by subjecting it to an unexpected shock, whereas simultaneous equation models are better suited for policy simulations. A draw back of the SVAR methodology is that due to the low dimension of typical SVAR models the assumption that the underlying shocks are orthogonal is likely to be fairly restrictive.

Info

JEL Classification
C32, C51

Key Words

  • Identification
  • Impulse Response Analysis
  • Structural Vector Autoregressions