[R] VAR with contemporaneous effects

Downey, Patrick PDowney at urban.org
Fri Mar 12 00:52:43 CET 2010


I would like to estimate a VAR of the form:

Ay_t = By_t-1 + Cy_t-2 + ... + Dx_t + e_t

Where A is a non-diagonal matrix of coefficients, B and C are matricies of
coefficients and D is a matrix of coefficients for the exogenous variables.

I don't think the package {vars} can do this because I want to include
contemporaneous cross-variable impacts. 

So I want y1_t to affect y2_t and I think in {vars} I can only have y1_t-1
affect y2_t. 

{vars} will only allow VARs of the form:

y_t = By_t-1 + Cy_t-2 + ... + Dx_t + e_t

Solutions? Maybe another package? Or maybe I'm thinking about this wrong?

(And I know that I have to put constraints on A to get identification - I'm
willing to do that).

Mitch Downey

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