Hello,
I have two questions concerning correlated shocks and impulse response functions (irf).
-
Suppose I have two stationary AR(1)-processes a=rhoa(-1)+u and b=thetab(-1)+e and corr u, e = 0. When running irf, why do I get non-zero values for variables a_e and b_u. They are really small (in the range of 10^-15), yet they are non-zero and the irf (in the range of 10^-15) looks as if b was shocked by u and a by e, respectively .
I always observe this in the case of 2nd order approximation and sometimes in the case of 1st order approximation as well.
Can somebody explain this to me? -
Now suppose corr u,e > 0. What does this imply for my irf? I observe that b is not shocked by the standard deviation of e, but by a smaller value, a_e is zero (or almost zero) and b is shocked by a value equal to (stdderr.e * corr e,u), i.e b_u is non-zero.
Did I do something wrong?
Thanks for the help in advance,
best regards,
Niklas