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Estimating a Structural VAR To estimate a structural VAR you begin as you would any VAR estimation but selecting the series in your VAR and estimating a conventional VAR. The following example is from a paper co-written with a former graduate student and deals with inflation/deflation in China. Step 1: Choose the series you are interested in. Here, CPI inflation and real GDP growth (a constant and a dummy for the deflation are assumed to be exogenous variables). The VAR is assumed to have 4 lags.

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Step 2: Estimate the unrestricted VAR which results in the following window appearing

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Step 3: Click on “Procs” which produces the following menu

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Step 4: Choose “Estimate Structural Factorization” (the last item on the menu) and the following will appear

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Step 5: Now you need to choose the structural factorization. Several choices are available. First, you can enter the long or short-run restriction via text and Eviews gives an example. We shall also go over this approach in class. Alternatively (and preferably), you can create a matrix, here called “patc” which contains the unrestricted (denoted by NA) and the restricted (here a numerical value is used but it could be some other value). The matrix is created as follows (this can be done in the top window where commands are entered): matrix (2,2) patd matrix is the command, (2,2) tells Eviews the size of the matrix (here 2 rows and 2 columns), while patd is the name given to the matrix. As shown below, when the matrix is created the rows and columns are zeroes and they can be edited just as any series value can be edited in the worksheet.

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Step 6: Once you have decided whether the restrictions are of the long-run of short-run variety you enter the matrix name as shown below and estimate the SVAR. In class we will discuss the choices that can be made as well as the differences between short and long-run restrictions

a. patc is the matrix used and a long-run restriction is assumed

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b. OK is pressed and the results appear as shown below:

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Step 7: Finally, you will want to generate Impulse responses and/or Variance decompositions. These are as before but now we can obtained the IRF based on the SVAR approach. This is obtained by choosing the “structural decomposition”, as shown below. More on the implications and interpretations of such choices, and other details, are left from classroom discussion.