A critical note on the forecast error variance decomposition

Seymen, Atilim

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URL:	http://ub-madoc.bib.uni-mannheim.de/2097
URN:	urn:nbn:de:bsz:180-madoc-20971
Document Type:	Working paper
Year of publication:	2008
The title of a journal, publication series:	None
Publication language:	English
Institution:	Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series:	Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject:	330 Economics
Classification:	JEL: C32 E32 ,
Subject headings (SWD):	Konjunkturprognose , Prognoseverfahren , Varianzanalyse , Vektor-autoregressives Modell , Theorie
Keywords (English):	Business Cycles , Structural Vector Autoregression Models , Forecast Error Variance Decomposition , Historical Variance Decomposition
Abstract:	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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