VAR function

Estimates a standard VAR(1)

VAR(RiskFactors, VARtype, Bcon = NULL)

Arguments

• RiskFactors: A numeric matrix (FTx T) representing the time series of risk factors.

• VARtype: String vector with two possible values: 'unconstrained' or 'constrained'.

• Bcon: Constraints matrix (F+1 x N), which includes an intercept. If Bcon(i,j) = NA, then B(i,j) is treated as a free parameter.

  Default is set to NULL.

Returns

intercept, feedback matrix and the variance-covariance matrix of a VAR(1)

Examples

data("CM_Factors")
# Example 1: unconstrained case
VAR(RiskFactors, VARtype= 'unconstrained')

# Example 2: constrained case
K <- nrow(RiskFactors)
Bcon <- matrix(0, nrow = K, ncol = K+1)
Bcon[ , 1:3] <- NaN
VAR(RiskFactors, VARtype= 'constrained', Bcon)