I am trying to NOT use packages for the estimation of models in order to have a deeper understanding of how things work. Currently, I am trying to estimate a VAR(1) (vector autoregression of first order) and my question is about how to construct the matrix of dependent and independent variables.
Theoretically, my model is:
As for the matrix of dependent variables, it should be easy enough. I just need to stack
zt. However, I don't know how to construct the matrix of independent variables. I read that VAR is very similar to SUR (Seemingly Unrelated Regressions) so I think that the matrix of independent variables should be a block diagonal matrix, but what should it look like? Especially if I want to add a constant and a time trend to the model?