What is Vector Autoregression (VAR)

The aim of this chapter is to study the impact of the selected macroeconomic indicators on unemployment rate in the region of Western Balkan countries and, more specifically, Albania, Serbia, Macedonia, Montenegro, Bosnia-Herzegovina, and Kosovo. This research is based on the time period 2000 to 2017 and includes five countries and the econometric model used in here is panel data. Data are retrieved from official and trustable sources such as World Bank and International Monetary Fund (IMF). The methodology used is the vector autoregressive model (VAR), unit root test, Hausman test, Granger causality test. All the macroeconomic variables, inflation, interest rates, GDP, and FDI are found to have a significant impact on unemployment rate of this group of countries. The novelty of this study remains the fact that this analysis is performed for the Western Balkan countries as a group. The results can serve and can be taken into consideration when applying similar econometric analysis in the future researches or implementing new policies that influences the macroeconomic factors.