1) Take at least two of your I(1) variables of your empirical project.

If non of your variables are

I(1) use the short term and the long term interest rate from FRED.

The upper graphs show that they are I(1) and the lowers ones are I (0) they are stationary in
the mean.

2) Estimate a VAR in first differences and in levels. Comment on the results

VAR in differences, in this, reduce form, the only

economic analysis is to do the run long multiplier that
is adding all the lags when L = 1.

This VAR has 2 lags and it was the one with the lower
Akaike value.

We also can do Granger Causality to see what´s going

on.
In levels

Doing this in levels, I am afraid that this could be

and spurious correlation T values are just too high,
R^2 close to one, looks suspicious . . .

3) Test if the residuals of the VAR models are white noise

Portmanteau in first Differences.

This is a test to see if the residuals are

white noise, The H0 is not rejected then,
there is enough evidence to believe that
the residuals are white noise.
Autocorrelation test First Differences.

The same conclusion as before now is

safe to assume that they are white
noise.

LM Autocorrelation test in levels

This is a test to see if the

residuals are white noise, The H0
is not rejected then, there is
enough evidence to believe that
the residuals are white noise.

Portmanteau Test in Levels

The same conclusion as before now is

safe to assume that they are white noise.
4. Do IRF in differences and accumulate the impact to obtain the impact in levels. Compare
that with the IRF in the VAR in levels. Interpret the results in economic terms

Interpretation

This impact is in
levels, so is emulating
an I (1) process so
shocks are permanent

It will not disappear

after some periods.

Accumulated
Response of Dmelec
to Dgas is 0, by
construction making
the matrix lower
triangular.

It´s very interesting that Dmelec has a shock and the impact in Dgas is very low, although the
impact that the variable with itself is very strong. And even more or less constant in time in
both cases.

Note: I will believe these accumulated shocks are the ones to forecast, It could be related
because as much as the forecast is farther on time the error is increasing.

4.1 in level

This conclusion is very interesting

because by construction the
response of GAS to Melec is 0,
but because is I(1) process ends
higher than 0.
(Very suspicious)

The Response of Gas and Melec

to themselves is decreasing over
time but over that 0, is an I(1)
process that should be a
permanent shock.

The response of Melec to shock

in GAS, in this model is increasing
meaning over time the shock of GAS affects more on Melec.

Note: All these Levels of analysis is very weird and happy to be in this class to be available to
explain why this has no sense. I will bet that is because they are not cointegrated.
5. Do the variance decomposition of the VAR models in differences and in levels. Comment on
the results.

Variance descomposition Inverting the other there is not a better result

Order: Melec gas Order: Gas melec

After checking this analysis, all the variance is just explained by itself variables.

Melec and then gas Now in levels Inverting the order to gas and then melec

Here is a little more distributed in comparison with the first difference analysis but, the
conclusions are the same.