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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...
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An impulse response shows after a variable A has been shocked by 1 standard deviation, how the other variables respond to the shock.

Eg. when there is 0.001 spike visible for variable B 1 standard deviation shock to variable A cause 0.1% change to variable B

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