Vector Autoregressions, Policy Analysis, and Directed Acyclic Graphs: An Application to the U.S. Economy

abstract

• The paper considers the use of directed acyclic graphs (DAGs), and their construction from observational data with PC-algorithm TETRAD II, in providing over-identifying restrictions on the innovations from a vector autoregression. Results from Sims 1986 model of the US economy are replicated and compared using these data-driven techniques. The directed graph results show Sims six-variable VAR is not rich enough to provide an unambiguous ordering at usual levels of statistical significance. A significance level in the neighborhood of 30 % is required to find a clear structural ordering. Although the DAG results are in agreement with Sims theory-based model for unemployment, differences are noted for the other five variables: income, money supply, price level, interest rates, and investment. Overall the DAG results are broadly consistent with a monetarist view with adaptive expectations and no hyperinflation.

authors

• Bessler, David

published proceedings

• Journal of Applied Economics

author list (cited authors)

• Awokuse, T. O., & Bessler, D. A.

citation count

• 40

complete list of authors

• Awokuse, Titus O||Bessler, David A

publication date

• May 2003

publisher

• Taylor & Francis  Publisher

published in

• Journal of Applied Economics  Journal

keywords

• C1
• Directed Graphs
• E1
• Policy Analysis
• Vector Autoregression

Digital Object Identifier (DOI)

• 10.1080/15140326.2003.12040583

start page

• 1

end page

• 24

volume

• 6

issue

• 1

URL

• http://dx.doi.org/10.1080/15140326.2003.12040583