Title: An empirical strategy for applying VAR model to the analysis of macroeconomic responses

Authors: Namkyu Park, Dongbin Jeong

Addresses: Department of Industrial and Systems Engineering, Ohio University Athens, OH 45701, USA. ' Department of Information Statistics, Gangneung-Wonju National University, Gangneung, Gangwon Province 210-702, South Korea

Abstract: The analysis of business cycle performed in this paper is based on the past 24 years| macroeconomic data in Korea. The three major economic variables – gross domestic product, consumer price index, and exchange rate – have been considered for the Korean business cycle analysis using vector autoregression (VAR) model. Some empirical strategies for the analysis are also suggested for the purpose of building an appropriate VAR model based on the real market and global economic areas. Using the VAR model, macroeconomic responses to the three variable shocks were investigated using the historical data in Korea.

Keywords: innovation; learning process; business cycle analysis; cointegration test; vector autoregression; VAR modelling; forecast error variance decomposition; macroeconomics; impulse response analysis; Korea; gross domestic product; GDP; consumer price index; exchange rates.

DOI: 10.1504/IJIL.2011.038542

International Journal of Innovation and Learning, 2011 Vol.9 No.2, pp.163 - 183

Published online: 10 Feb 2011 *

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