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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 :)