Week 11 Homework Feedback: Alessia Canuto

Overall Assessment

Grade: ✅ (Pass)

Correct submission. You correctly estimated the 3-variable VAR, implemented the Cholesky identification with the specified ordering, and generated the Impulse Response Functions for a monetary policy shock. Your discussion of the “Price Puzzle” is particularly well-articulated.

Task-by-Task Check

Data Preparation

  1. Transformations: ✅ Correct annualized growth rates and levels for interest rate.
  2. Alignment: ✅ Correctly aligned data by removing the first row after differencing.

Estimation & Identification

  1. VAR Estimation: ✅ Correct OLS estimation of $A_1$.
  2. Covariance: ✅ Residual covariance $\Sigma$ calculated correctly.
  3. Cholesky: ✅ Used chol(Sigma, 'lower') correctly.
  4. Ordering: ✅ Correct recursive ordering: GDP $\to$ Inflation $\to$ Interest Rate.

Impulse Response Functions

  1. Shock Selection: ✅ Correctly identified the monetary policy shock (3rd structural shock).
  2. IRF Computation: ✅ Correct simulation loop for IRFs.
  3. Plotting: ✅ Clear plots of all three variables.
  4. Interpretation: ✅ Excellent interpretation of results, including the “Price Puzzle” and the recessionary effect on GDP.

Technical Implementation

  • Code Structure: Very clean and organized.
  • Figures: Figure saved correctly to the Figures/ folder.

Suggestions for Improvement

  • None. This is a model submission.

Summary

10/10 tasks correct. Correct work.