In Gali’s book, he presents some VAR model results in Chapter 1 and then tries to match these results using the theoretical model so that the theoretical model could be used for policy analysis. I also see a similar research program in other places but I refer to it as Gali’s approach for convenience.
The VAR in Ch.1 focuses on the responses of GDP, interest rate, money, and inflation to a contractionary monetary policy shock.
Are these four responses at the discretion of the researcher? It seems so, but maybe not entirely. For example, why not 2 or 3 or 5?
Specifically, did Gali choose these 4 because they are the most popular IRFs in the monetary policy literature, or maybe they are the four core IRFs he cares about the most in the theoretical model so that the remaining responses (wages, unemployment, etc.) are just accompanying the core four responses of interest?