A Critical Note on the Forecast Error Variance Decomposition

The paper questions the reasonability of using forecast error variance decompositions for assessing the role of different structural shocks in business cycle fluctuations. It is shown that the forecast error variance decomposition is related to a dubious definition of the business cycle. A historical variance decomposition approach is proposed to overcome the problems related to the forecast error variance decomposition.

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Year of publication:	2008
Authors:	Seymen, Atilim
Institutions:	Zentrum für Europäische Wirtschaftsforschung (ZEW)
Subject:	Business Cycles \| Structural Vector Autoregression Models \| Forecast Error Variance Decomposition \| Historical Variance Decomposition

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Extent:	application/pdf
Series:	ZEW Discussion Papers.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 08-065
Classification:	C32 - Time-Series Models ; E32 - Business Fluctuations; Cycles
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005097587