Sign Restriction with 30 observations?

[umee]

Is VAR analysis with 30 data points possible. Specifically, sign-restriction analysis with 7 variables, 6 of which are restricted?

[TomDoan]

With a one-lag VAR, you could do it. Two lags would come pretty close to running you out of degrees of freedom for the covariance matrix.

[umee]

Tom,

To get more observations I switched from quarterly to monthly data. However, running the sign-restricted VAR with monthly data leads to very large percent changes; instead of a .04 change, now I see changes of 20 or 30. Any idea what could be driving this? Is it just of function of rescaling my data? I wouldn't think that should be an issue.

FYI - I'm using the code from Uhling 2005 to look at the effect of monetary policy on employment.

Thanks.

[TomDoan]

How did you "rescale the data"? Yes, changing the scale of the data changes the scale of the responses.

[umee]

Thanks. The scaling of the GDP deflator varied substantially.

[TomDoan]

I'm confused. The scaling of a variable should be up to you. How does it "vary considerably"?

[umee]

With the quarterly data I used data on GDP and the GDP deflator from FRED, but with the monthly data I found a monthly GDP measure and I computed the GDP delfator as (Nominal/Real)*100. For the monthly data I had values like 5 and 6, but for the quarterly data the measures were 100, 102, etc. So I scrapped the GDP measure that I computed and just used monthly CPI data from FRED.

[TomDoan]

If you're going to convert those to logs anyway (you are, aren't you??), it doesn't matter---the scale of a price index is arbitrary.

[umee]

Yes, I did convert them to logs.