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Model selection, estimation and forecasting in VAR models with short-run and long-run restrictions

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  • Athanasopoulos, George
  • de Carvalho Guillén, Osmani Teixeira
  • Issler, João Victor
  • Vahid, Farshid

Abstract

We study the joint determination of the lag length, the dimension of the cointegrating space and the rank of the matrix of short-run parameters of a vector autoregressive (VAR) model using model selection criteria. We suggest a new two-step model selection procedure which is a hybrid of traditional criteria and criteria with data-dependant penalties and we prove its consistency. A Monte Carlo study explores the finite sample performance of this procedure and evaluates the forecasting accuracy of models selected by this procedure. Two empirical applications confirm the usefulness of the model selection procedure proposed here for forecasting.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 164 (2011)
Issue (Month): 1 (September)
Pages: 116-129

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Handle: RePEc:eee:econom:v:164:y:2011:i:1:p:116-129

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

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Keywords: Reduced rank models Model selection criteria Forecasting accuracy;

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Cited by:
  1. Hecq, Alain & Issler, João Victor, 2012. "A Common-Feature Approach for Testing Present-Value Restrictions with Financial Data," Economics Working Papers (Ensaios Economicos da EPGE) 728, Graduate School of Economics, Getulio Vargas Foundation (Brazil).
  2. Zhipeng Liao & Peter C.B. Phillips, 2012. "Automated Estimation of Vector Error Correction Models," Cowles Foundation Discussion Papers 1873, Cowles Foundation for Research in Economics, Yale University.
  3. Heather M Anderson & Farshid Vahid, 2010. "VARs, Cointegration and Common Cycle Restrictions," Monash Econometrics and Business Statistics Working Papers 14/10, Monash University, Department of Econometrics and Business Statistics.
  4. Issler, João Victor & Rodrigues, Claudia & Burjack, Rafael, 2013. "Using Common Features to Understand the Behavior of Metal-Commodity Prices and Forecast them at Different Horizons," Economics Working Papers (Ensaios Economicos da EPGE) 736, Graduate School of Economics, Getulio Vargas Foundation (Brazil).

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