VFCI / vfciBusinessCycles

Research project exploring the relationship between financial conditions and business cycles.
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Add new figures and comparisons to VAR charts #53

Closed matdehaven closed 3 months ago

matdehaven commented 5 months ago
matdehaven commented 5 months ago
matdehaven commented 5 months ago

BCA paper calculates the "Variance Contributions" at business cycle frequencies as the ratio between the sums of the variance explained over total variance at business cycle frequencies. This is the same as the variance-weighted average of the forecast error variance decomposition.

matdehaven commented 5 months ago

The Forecast error variance calculations are correct. The sum of the frequency FEV is equal to the limit of the time domain FEV. These should both be equal to the unconditional variance of each variable in the VAR, but they are not for this VAR. I think it is because some of the variables are in levels and are thus not stationary.