In a reduced VAR(1) model, what does it imply if both coefficients are statistically significant? A) There is no relationship between the two time series variables. B) There exists... In a reduced VAR(1) model, what does it imply if both coefficients are statistically significant? A) There is no relationship between the two time series variables. B) There exists a unidirectional relationship from y to x. C) There exists a feedback relationship between x and y. D) There exists a unidirectional relationship from x to y.
Understand the Problem
The question concerns the interpretation of coefficients in a reduced Vector Autoregression (VAR(1)) model, specifically focusing on the implications of the signs of coefficients to determine the causal relationship between two time series variables, x and y. Understanding VAR models and Granger causality is crucial for selecting the correct answer.
Answer
C) There exists a feedback relationship between x and y.
The final answer is C) There exists a feedback relationship between x and y.
Answer for screen readers
The final answer is C) There exists a feedback relationship between x and y.
More Information
In a reduced VAR(1) model, if both coefficients are statistically significant, it suggests there's a feedback relationship between the variables. This means each variable influences the other.
Tips
A common mistake is assuming a unidirectional relationship when both coefficients are significant. Remember that significance in both directions indicates a feedback loop.
Sources
- Vector Autoregressive (VAR) Models and Granger Causality in Time ... - pmc.ncbi.nlm.nih.gov
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