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Autor:innen: 
Erscheinungsjahr: 
2008
Schriftenreihe/Nr.: 
Cardiff Economics Working Papers No. E2008/10
Verlag: 
Cardiff University, Cardiff Business School, Cardiff
Zusammenfassung: 
Let e and Σ be respectively the vector of shocks and its variance covariance matrix in a linear system of equations in reduced form. This article shows that a unique orthogonal variance decomposition can be obtained if we impose a restriction that maximizes the trace of A, a positive definite matrix such that Az = e where z is vector of uncorrelated shocks with unit variance. Such a restriction is meaningful in that it associates the largest possible weight for each element in e with its corresponding element in z. It turns out that A = Σ[...] , the square root of Σ.
Schlagwörter: 
Variance decomposition
Cholesky decomposition
unique orthogonal decomposition and square root matrix
JEL: 
C01
Dokumentart: 
Working Paper

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