Can I run my VAR model on differenced variables?
Posted: January 4th, 2019, 7:42 pm
by tiko
1- Can I run my VAR on first differenced variables or returns, rather than level variables, or is that totally wrong?
2-I run a second VAR model on level variables, do I have to take their logs?
Re: Can I run my VAR model on differenced variables?
Posted: January 5th, 2019, 10:27 pm
by bearish
Assuming that you are talking about vector autoregression, this discussion may be of use:
VAR in levels or differences. The answer to your second question depends on how you think the volatility of your processes are best specified: constant in absolute terms or constant as a fraction of the level (as we used to say in interest rate modeling in the early 90's: are rates normal or lognormal?).
Re: Can I run my VAR model on differenced variables?
Posted: January 6th, 2019, 5:46 am
by tiko
Thank you dear bearish for the link, helps