In this clip, we are going to examine a vector autoregressive model for a system of three series. The data we have in this V's file are the French, German, and US long-term government interest rates. Let's first take a look at these data. It is always important to analyze the data before proceeding. We open all three series as a group and observe that they are expressed in percentage points. We then create a line graph to visualize the data. The graph shows that the series generally move together, especially in the latter part of the series. However, there was a period in the 80s where they did not move closely together, although the general tendency still matched more or less. Now, we are going to build a simple VAR (vector autoregressive) model for all of these series. Firstly, we delete the graph and the group. Then, we highlight the three series and choose the ordering: US, Germany, France. The order of the series is crucial in VAR modeling. We open this as a VAR model and specify the lag as one. Additionally, we include a constant. After clicking okay, we obtain the VAR model results. The results reveal that the lag for the US long rate, one period ago, is very close to one. The same is observed for the Germany and French series. This indicates that these series may have non-stationarity. Hence, to address this issue, we will now use the first differences of the series by applying a "D" in parentheses to each series. This tells the software that we want to use the first differences. After pressing okay, we observe that the coefficients have changed. Since we have three variables, we get three columns: one for the coefficients in the US equation, one for the...
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