We analyze the pitfalls involved in VAR based return decompositions. First, we show that recent criticism of such decompositions is misplaced and builds on invalid VAR models and erroneous interpretations. Second, we explain the requirements needed for VAR decompositions to be valid. A crucial -...

The historical decomposition is standard within the vector autogression (VAR) toolkit. It provides an interpretation of historical fluctuations in the modelled time series through the lens of the identified structural shocks. The proliferation of nonlinear VAR models naturally leads to extending...

This paper investigates the nonlinearity in the effects of news shocks about technological innovations. In a maximally flexible logistic smooth transition vector autoregressive model, state-dependent effects of news shocks are identified based on medium-run restrictions. We propose a novel...