Resolution of Systems of Difference Equations and Its Implications for the VAR Model

Systems of difference equations frequently present dynamically unstable solutions in the long term, which could imply the appearance of complications in the application of vector autoregressive (VAR) models in the Johansen sense, regardless of the precision required. In this work the necessary conditions are presented to guarantee the dynamical convergence of the solutions from the approach of the systems in discrete time series with the stochastic processes. The main aim is to show the importance of dynamic stability in structural-type models with respect to estimator bias.