<p>I have an IRF that shows the GDP shock to GDP.</p>

<p>Let's say I have a 5-year forecast of GDP. If there is an immediate 1% decrease in GDP today, can I adjust the original 5-year forecast by using the IRF?</p>

<p>e.g., GDP forecast in year 3 is 500 USD. The IRF says a 1% decrease in GDP will cause a 0.1 % decrease in year 3. Can I simply adjust the forecast downwards by 0.1% to to 499.5 USD?</p>

<p>Thank You</p>

CC BY-SA 3.0
2015-02-21T01:17:26.360Z
From what kind of model was the IRF obtained? If univariate, then your approach is likely correct. If multivariate, you'd need to assume that the initial drop was actually caused by that specific type of shock for which IRF was computed (since the model would include several types of shocks, with different impacts on GDP).
ivansml
CC BY-SA 3.0
2015-02-21T11:42:50.360Z
Thanks for your help, @ivansml! This is indeed a multivariate model / VAR.
Abraham
<gdp><time-series>
Interpretation of the Impulse Response Function
Abraham
# Interpretation of the Impulse Response Function

(Asked by: username_0 on 2015-02-20)

I have an IRF that shows the GDP shock to GDP.

Let's say I have a 5-year forecast of GDP. If there is an immediate 1% decrease in GDP today, can I adjust the original 5-year forecast by using the IRF?

e.g., GDP forecast in year 3 is 500 USD. The IRF says a 1% decrease in GDP will cause a 0.1 % decrease in year 3. Can I simply adjust the forecast downwards by 0.1% to to 499.5 USD?

Thank You

**Tags:** gdp, time-series
> **Comments:**
> **username_1**: From what kind of model was the IRF obtained? If univariate, then your approach is likely correct. If multivariate, you'd need to assume that the initial drop was actually caused by that specific type of shock for which IRF was computed (since the model would include several types of shocks, with different impacts on GDP).  
> **username_0**: Thanks for your help, @ivansml! This is indeed a multivariate model / VAR.  

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