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Studying co-movements in large multivariate data prior to multivariate modelling

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Author Info
Cubadda, Gianluca
Hecq, Alain
Palm, Franz C.

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Abstract

For non-stationary vector autoregressive models (VAR hereafter, or VAR with moving average, VARMA hereafter), we show that the presence of common cyclical features or cointegration leads to a reduction of the order of the implied univariate autoregressive-integrated-moving average (ARIMA hereafter) models. This finding can explain why we identify parsimonious univariate ARIMA models in applied research although VAR models of typical order and dimension used in macroeconometrics imply non-parsimonious univariate ARIMA representations. Next, we develop a strategy for studying interactions between variables prior to possibly modelling them in a multivariate setting. Indeed, the similarity of the autoregressive roots will be informative about the presence of co-movements in a set of multiple time series. Our results justify both the use of a panel setup with homogeneous autoregression and heterogeneous cross-correlated vector moving average errors and a factor structure, and the use of cross-sectional aggregates of ARIMA series to estimate the homogeneous autoregression.

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Publisher Info
Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 148 (2009)
Issue (Month): 1 (January)
Pages: 25-35
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Handle: RePEc:eee:econom:v:148:y:2009:i:1:p:25-35

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Web page: http://www.elsevier.com/locate/jeconom

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Related research
Keywords: Interactions Multiple time series Co-movements ARIMA Cointegration Common cycles Dynamic panel data;

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References listed on IDEAS
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  1. Vahid, Farshid & Engle, Robert F., 1997. "Codependent cycles," Journal of Econometrics, Elsevier, vol. 80(2), pages 199-221, October. [Downloadable!] (restricted)
  2. Maravall, Agustin & Mathis, Alexandre, 1994. "Encompassing univariate models in multivariate time series : A case study," Journal of Econometrics, Elsevier, vol. 61(2), pages 197-233, April. [Downloadable!] (restricted)
  3. Wallis, Kenneth F, 1977. "Multiple Time Series Analysis and the Final Form of Econometric Models," Econometrica, Econometric Society, vol. 45(6), pages 1481-97, September. [Downloadable!] (restricted)
  4. Alain Hecq & Franz Palm & Jean-Pierre Urbain, 2002. "Separation, Weak Exogeneity, And P-T Decomposition In Cointegrated Var Systems With Common Features," Econometric Reviews, Taylor and Francis Journals, vol. 21(3), pages 273-307. [Downloadable!] (restricted)
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  5. Vahid, F & Engle, Robert F, 1993. "Common Trends and Common Cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(4), pages 341-60, Oct.-Dec.. [Downloadable!] (restricted)
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  6. Robert F. Engle & Sharon Kozicki, 1990. "Testing For Common Features," NBER Technical Working Papers 0091, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Gianluca Cubadda, 2007. "A Unifying Framework for Analysing Common Cyclical Features in Cointegrated Time Series," CEIS Research Paper 102, Tor Vergata University, CEIS. [Downloadable!]
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  8. Palm, Franz, 1977. "On univariate time series methods and simultaneous equation econometric models," Journal of Econometrics, Elsevier, vol. 5(3), pages 379-388, May. [Downloadable!] (restricted)
  9. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2000. "The Generalized Dynamic-Factor Model: Identification And Estimation," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 540-554, November. [Downloadable!] (restricted)
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  10. Palm, Franz & Zellner, Arnold, 1980. "Large sample estimation and testing procedures for dynamic equation systems," Journal of Econometrics, Elsevier, vol. 12(3), pages 251-283, April. [Downloadable!] (restricted)
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  11. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 147-62, April.
  12. Zellner, Arnold & Palm, Franz, 1974. "Time series analysis and simultaneous equation econometric models," Journal of Econometrics, Elsevier, vol. 2(1), pages 17-54, May. [Downloadable!] (restricted)
  13. Hecq, Alain & Palm, Franz C. & Urbain, Jean-Pierre, 2006. "Common cyclical features analysis in VAR models with cointegration," Journal of Econometrics, Elsevier, vol. 132(1), pages 117-141, May. [Downloadable!] (restricted)
  14. Cubadda, Gianluca & Hecq, Alain, 2001. "On non-contemporaneous short-run co-movements," Economics Letters, Elsevier, vol. 73(3), pages 389-397, December. [Downloadable!] (restricted)
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