I would need a quick help with Impulse response function interpretation which I have done after Vector autoregression model in stata.
I need to understand how to interpret IRF graph or table values correctly. What does the value on y axis mean?
In am trying to understand response of Exchange rate volatility to Interest rate (both values are in log differences). Possible interpretations when there is 0.001 spike visible:
- 1 standard deviation shock in IR cause 0.001 change to ER volatility value
- 1 standard deviation shock in IR cause 0.1% change to ER volatility
- 1 standard deviation shock in IR cause change to ER volatility of 0.001 of shock size
- any other explation...