Estimate Joint Distribution of Macro Shocks

Estimates the joint distribution of GDP growth, interest rate, and primary balance shocks for use in stochastic debt sustainability analysis. Three estimation methods are supported: a VAR(1) model (default), residual bootstrap, and a simple multivariate normal fit.

Usage

dk_estimate_shocks(
  gdp_growth,
  interest_rate,
  primary_balance,
  method = c("var", "bootstrap", "normal"),
  years = NULL
)

Arguments

gdp_growth

Numeric vector of historical real GDP growth rates.

interest_rate

Numeric vector of historical nominal (or real) interest rates.

primary_balance

Numeric vector of historical primary balance-to-GDP ratios.

method

Character; one of "var" (default), "bootstrap", or "normal".

years

Optional numeric vector of year labels (same length as data).

Value

An S3 object of class dk_shocks with components:

vcov

3x3 variance-covariance matrix with rows/columns named growth, interest_rate, primary_balance.

means

Named numeric vector of variable means.

method

The estimation method used.

residuals

Matrix of residuals (for "var" and "bootstrap") or NULL (for "normal").

var_coefficients

VAR(1) coefficient matrix (for "var") or NULL.

n_obs

Number of observations used.

Details

For method = "var", a VAR(1) is estimated equation-by-equation via OLS on the lagged system. The residual variance-covariance matrix captures the joint shock distribution. For method = "bootstrap", the same VAR(1) is estimated and residuals are stored for block resampling. For method = "normal", the sample means and covariance of the raw series are used directly.

Examples

set.seed(1)
n <- 30
g <- rnorm(n, 0.02, 0.015)
r <- rnorm(n, 0.03, 0.01)
pb <- rnorm(n, -0.02, 0.01)
shocks <- dk_estimate_shocks(g, r, pb)
print(shocks)
#> 
#> ── Macro Shock Estimates ───────────────────────────────────────────────────────
#> • Method: var
#> • Observations: 29
#> • Variable means:
#>     growth = 2.1%, interest_rate = 3.1%, primary_balance = -1.9%
#> • Shock std. deviations:
#>     growth = 1.4 pp, interest_rate = 0.8 pp, primary_balance = 0.9 pp
#> • Shock correlation matrix:
#>                 growth interest_rate primary_balance
#> growth           1.000         0.068           0.041
#> interest_rate    0.068         1.000           0.388
#> primary_balance  0.041         0.388           1.000