The Biggest Conceptual Difference Between Using VARs for Forecasting and Using

question 44

Multiple Choice

The biggest conceptual difference between using VARs for forecasting and using them for structural modeling is that

• A)you need to use the Granger causality test for structural modeling.
• B)structural modeling requires very specific assumptions derived from economic theory and institutional knowledge of what is exogenous and what is not.
• C)you can no longer use the information criteria to decide on the lag length.
• D)structural modeling only allows a maximum of three equations in the VAR.

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Definitions:

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, resulting in a net profit or loss.

Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life, reflecting the asset's consumption or wear and tear.

Exchange Rates

The price of one currency in terms of another currency, which determines how much of one currency can be exchanged for another.

Balance Sheet

A financial report detailing a company's assets, liabilities, and equity held by shareholders at a particular moment.