Variance Decomposition

[qazi.haque]

Hi there,

Just wanted to know, is the unconditional variance decomposition (reported in DYNARE) different from infinite-horizon forecast error variance decomposition?

Thanks,
Qazi

[jpfeifer]

Those are the same concepts.

[qazi.haque]

...meaning shocks happen every period between now and infinity and variance decomposition is simply the fraction of the variance of each variable that each shock would explain in an inifinitely long simulation of the specified model.

Is that correct?

[jpfeifer]

Yes, this is one way to interpret it.

[qazi.haque]

Thanks!