\(\newcommand{\epsb}{{\boldsymbol{\epsilon}}} \newcommand{\mub}{{\boldsymbol{\mu}}} \newcommand{\thetab}{{\boldsymbol{\theta}}} \newcommand{\Thetab}{{\boldsymbol{\Theta}}} \newcommand{\etab}{{\boldsymbol{\eta}}} \newcommand{\Sigmab}{{\boldsymbol{\Sigma}}} \newcommand{\Phib}{{\boldsymbol{\Phi}}} \newcommand{\Phat}{\hat{{\bf P}}}\)Vector autoregression (VAR) is a useful tool for analyzing the dynamics of multiple time series. VAR expresses a vector of observed variables as a function of its own lags. Simulation Let’s begin by simulating a bivariate VAR(2) process using the following specification, \[ \begin{bmatrix} y_{1,t}\\ y_{2,t} \end{bmatrix} […]
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