What is the shock in the BEAR toolbox, a unit shock or a standard deviation?

I am running a BVAR model with triangular identification and I want to know what is the shock in the IRF, from the graphs provided

Answer 1

[Rishi]

Hi Franco,

I understand from your query that you want to know what the shock in the IRF in a BVAR model depicts. I am assuming that you are referring to the following 'irf' function in The BEAR toolbox:

https://viewer.mathworks.com/?viewer=plain_code&url=https%3A%2F%2Fwww.mathworks.com%2Fmatlabcentral%2Fmlc-downloads%2Fdownloads%2F88d5c97e-6fab-4fbd-b973-c6f3685996b3%2F0f12596b-3003-4a6c-a0a2-9aa47272f120%2Ffiles%2Ftbx%2Fbear%2F%2Bbear%2Firf.m&embed=web

This function uses a standard approach to simulate IRFs in VAR models, where a shock is typically standardized to a one-unit incease in the error term of the equation for the variable of interest. However, the code does not explicitly normalize the shock to represent a one standard deviation shock.

In summary, the function computes IRFs for each endogenous variable to unit shocks in each of the other variables.

But when we refer to the built-in MATLAB function 'irf' for VAR models, the shocks are standard deviations. You can refer to the below documentation to learn more:

https://www.mathworks.com/help/econ/varm.irf.html#namevaluepairarguments:~:text=The%20irf%20function%20returns%20the%20dynamic%20response%2C%20or%20the%20impulse%20response%20function%20(IRF)%2C%20to%20a%20one%2Dstandard%2Ddeviation%20shock%20to%20each%20variable%20in%20a%20VAR(p)%20model.

Hope this helps!

[Singh basne]

I want to use 25 basis point of monetary policy shock. In that case there is no option available in App of BEAR toolbox. How can i do this in bear toolbox? please help