Does the Biased Coefficient Problem Plague the VAR Model?

Abstract

This paper documents evidence to investigate if the explanatory variables are always correlated with the error term in the vector autoregression (VAR) model because of the property of the VAR model. I use Christiano <i>et al</i>. (CEE, 2005) as an example to examine this argument empirically. According to the findings of this paper, the impulse responses provided by the structural VAR model may be derived from the biased estimates if we allow variables to be correlated with each other through different horizons. It remains possible for a skeptic to maintain some dominant views inferred from the biased coefficients of the SVAR models.