shrink_Phi function

Killan's VAR stationarity adjustment

shrink_Phi(Phi_tilde, Phi_hat, ev_restr)

Arguments

• Phi_tilde: VAR (1) bias-corrected feedback matrix from Bauer, Rudebusch and, Wu (2012)
• Phi_hat: unrestricted VAR(1) feedback matrix
• ev_restr: maximum eigenvalue desired in the feedback matrix after the adjustement

Returns

stationary VAR(1)

References

Bauer, Rudebusch and, Wu (2012). "Correcting Estimation Bias in Dynamic Term Structure Models".

This function is an adapted version of the"shrink_Phi" Matlab function available at Cynthia Wu's website (https://sites.google.com/view/jingcynthiawu/).