I have a panel dataset. My dependent variable is bank deposits and one of my explanatory variables is a dummy variable which takes values 0 if we are before the financial crisis and 1 otherwise. Can I create an impulse response graph after the implementation of a VAR model for a dummy variable ? If yes then how can I interpret this result?
Thanks in advance!
A shock means change the state of the variable and see how the others will response. in a dummy case, the change means unexpected exit from one state to totally different one (say; from crises to no crises). therefore, logically we can't accept such sudden shock.
What do you think??
Dear Dimitrios Anastasiou,
You can check the Impulse response of the dependent variable to a change in dummy variable such a in crisis or otherwise. Please get it and share so we may discuss its interpretation.
Best Wishes,
Atif
Would it make sense to make the integer analagous to time (i.e. a negative sequence of integers for each year before the shock, 0 representing 2008, and positive integers thereafter) - so as to infer how time affected the volume of bank deposits in years prior to and subsequent to the financial crisis? In other words, watch VAR over time with integers representing not solely 'null' and 'not null'...
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