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.

Question

Quizplus · Accepted Answer

VARs for forecasting rely on statistical relationships between variables without any assumptions based on economic theory or knowledge of exogenous factors. In contrast, structural modeling requires a clear and specific understanding of the relationship between variables based on economic theory and a clear understanding of exogenous factors. This allows for more accurate and reliable policy analysis but requires a more extensive and challenging modeling process.

The Biggest Conceptual Difference Between Using VARs for Forecasting and Using