fevd.decomp: Forecast Error Variance Decomposition

Description

This function calculates the forecast error variance decomposition (FEVDs) for Cholesky and sign-identified shocks.

Usage

fevd.decomp(obj, R=NULL, var.slct=NULL, verbose=TRUE)

Arguments

obj

an object of class bgvar.irf.

If NULL and the obj has been fitted via sign restrictions, the rotation matrix is used that minimizes the distance to the median impulse responses at the posterior median.

var.slct

character vector that contains the variables for which forecast error variance decomposition should be performed. If NULL the FEVD is computed for the whole system, which is very time consuming.

verbose

If set to FALSE it suppresses printing messages to the console.

Value

Returns a list with two elements

FEVD an array of size (K times horizon times N), where K are all variables in the system, horizon is the specified impulse response horizon and N is the size of the decomposed structural variables (if var.slct=NULL then K=N).
xglobal used data of the model.

Details

Since the calculations are very time consuming, the FEVDs are based on the posterior median only (as opposed to calculating FEVDs for each MCMC sweep). In case the underlying shock has been identified via sign restrictions, the rotation matrix corresponds to the one that fulfills the sign restrictions at the posterior median of the estimated coefficients. More precisely, the algorithm searches for 50 rotation matrices that fulfill the sign restrictions at the posterior median of the coefficients and then singles out the rotation matrix that minimizes the distance to the median of the impulse responses as suggested in Fry and Pagan (2011).

Examples

Run this code

# NOT RUN {
library(BGVAR)
data(eerData)
model.ssvs.eer<-bgvar(Data=eerData,W=W.trade0012,saves=100,burns=100,plag=1,
                      prior="SSVS",thin=1,eigen=TRUE)
                      
# US monetary policy shock
shocks<-list();shocks$var="stir";shocks$cN<-"US";shocks$ident="chol";shocks$scal=-100
irf.chol.us.mp<-IRF(obj=model.ssvs.eer,shock=shocks,nhor=48)

# calculates FEVD for variables US.Dp and EA.y
fevd.us.mp=fevd.decomp(obj=irf.chol.us.mp,var.slct=c("US.Dp","EA.y"))

# US monetary policy shock with sign restrictions
sign.constr<-list()
sign.constr$shock1$shock             <- c("US.stir")
sign.constr$shock1$restrictions$res1 <- c("US.y")
sign.constr$shock1$restrictions$res2 <- c("US.Dp")
sign.constr$shock1$sign              <- c(">","<","<")
sign.constr$shock1$rest.horz         <- c(1,1,1)
sign.constr$shock1$constr            <- c(1,1,1)
sign.constr$shock1$scal              <- +100 
sign.constr$MaxTries<-200
irf.sign.us.mp<-IRF(obj=model.ssvs.eer,sign.constr=sign.constr,nhor=24)

# calculates FEVD for variables US.Dp and EA.y
fevd.us.mp=fevd.decomp(obj=irf.sign.us.mp,var.slct=c("US.Dp","EA.y"))
# }
# NOT RUN {
# NOT RUN - calculates FEVDs for all variables in the system, very time consuming
# }
# NOT RUN {
# }