Asymmetric generalized impulse responses with an application in finance

Since the seminal work by Sims (1980), the impulse response functions are regularly applied to capture the propagation mechanism of a shock across time. This paper suggests a new approach for allowing asymmetry in the impulse response functions. This is an issue that has been neglected in the existi...

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Bibliographic Details
Published in:	Economic modelling 2014-01, Vol.36, p.18-22
Main Author:	Hatemi-J, Abdulnasser
Format:	Article
Language:	eng
Subjects:	Asymmetric impulses Asymmetry Economic models Economic theory Estimating techniques Estimation Generalization Innovation Mathematical functions Stock market Studies VAR modeling
Online Access:	Get full text
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Summary:	Since the seminal work by Sims (1980), the impulse response functions are regularly applied to capture the propagation mechanism of a shock across time. This paper suggests a new approach for allowing asymmetry in the impulse response functions. This is an issue that has been neglected in the existing literature on the estimation of impulses. In the current paper it is shown how the underlying variables can be transformed into cumulative positive and negative changes in order to estimate the impulses to an asymmetric innovation. An application is provided to demonstrate how the propagation mechanism of an asymmetric impulse operates. •This paper introduces the asymmetric generalized impulse response functions.•This new approach relies on transforming variables into positive and negative parts.•The application shows how propagation mechanism of an asymmetric impulse operates.
ISSN:	0264-9993 1873-6122