Advanced Search
MyIDEAS: Login to save this paper or follow this series

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

Contents:

Author Info

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

Abstract

We study the joint determination of the lag length, the dimension of the cointegrating space andthe rank of the matrix of short-run parameters of a vector autoregressive (VAR) model using modelselection criteria. We consider model selection criteria which have data-dependent penalties aswell as the traditional ones. We suggest a new two-step model selection procedure which is ahybrid of traditional criteria and criteria with data-dependant penalties and we prove its consistency.Our Monte Carlo simulations measure the improvements in forecasting accuracy that can arisefrom the joint determination of lag-length and rank using our proposed procedure, relative to anunrestricted VAR or a cointegrated VAR estimated by the commonly used procedure of selecting thelag-length only and then testing for cointegration. Two empirical applications forecasting Brazilianinflation and U.S. macroeconomic aggregates growth rates respectively show the usefulness of themodel-selection strategy proposed here. The gains in different measures of forecasting accuracy aresubstantial, especially for short horizons.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://bibliotecadigital.fgv.br/dspace/bitstream/10438/6993/4/JoE_AGIV_Final_Revision.pdf
Download Restriction: no

Bibliographic Info

Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 707.

as in new window
Length:
Date of creation: 13 Sep 2010
Date of revision:
Handle: RePEc:fgv:epgewp:707

Contact details of provider:
Postal: Praia de Botafogo 190, sala 1100, Rio de Janeiro/RJ - CEP: 22253-900
Phone: 55-21-2559-5871
Fax: 55-21-2553-8821
Email:
Web page: http://epge.fgv.br
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Anderson, Heather M. & Vahid, Farshid, 1998. "Testing multiple equation systems for common nonlinear components," Journal of Econometrics, Elsevier, Elsevier, vol. 84(1), pages 1-36, May.
  2. Casey B. Mulligan, 2002. "Capital, Interest, and Aggregate Intertemporal Substitution," NBER Working Papers, National Bureau of Economic Research, Inc 9373, National Bureau of Economic Research, Inc.
  3. Issler, Joao Victor & Vahid, Farshid, 2001. "Common cycles and the importance of transitory shocks to macroeconomic aggregates," Journal of Monetary Economics, Elsevier, Elsevier, vol. 47(3), pages 449-475, June.
  4. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, Econometric Society, vol. 58(1), pages 113-44, January.
  5. Cushing, Matthew J, 1992. "Liquidity Constraints and Aggregate Consumption Behavior," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 30(1), pages 134-53, January.
  6. Tom Engsted & Niels Haldrup & Boriss Siliverstovs, 2004. "Long-run forecasting in multicointegrated systems," Journal of Forecasting, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 23(5), pages 315-335.
  7. Robert E. Hall & Frederic S. Mishkin, 1980. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," NBER Working Papers, National Bureau of Economic Research, Inc 0505, National Bureau of Economic Research, Inc.
  8. Mankiw, N. Gregory, 1981. "The permanent income hypothesis and the real interest rate," Economics Letters, Elsevier, Elsevier, vol. 7(4), pages 307-311.
  9. Centoni, Marco & Cubadda, Gianluca & Hecq, Alain, 2007. "Common shocks, common dynamics, and the international business cycle," Economic Modelling, Elsevier, Elsevier, vol. 24(1), pages 149-166, January.
  10. Stock, James H, 1996. "VAR, Error Correction and Pretest Forecasts at Long Horizons," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 58(4), pages 685-701, November.
  11. Peter C.B. Phillips & Mico Loretan, 1989. "Estimating Long Run Economic Equilibria," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 928, Cowles Foundation for Research in Economics, Yale University.
  12. Graham, Fred C, 1993. "Fiscal Policy and Aggregate Demand: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 83(3), pages 659-66, June.
  13. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, Econometric Society, vol. 50(5), pages 1269-86, September.
  14. Jeffrey Fuhrer & George Moore & Scott Schuh, 1993. "Estimating the linear-quadratic inventory model: maximum likelihood versus generalized method of moments," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 93-11, Board of Governors of the Federal Reserve System (U.S.).
  15. Leeb, Hannes & P tscher, Benedikt M., 2005. "Model Selection And Inference: Facts And Fiction," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 21(01), pages 21-59, February.
  16. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, Elsevier, vol. 15(2), pages 145-161, March.
  17. Vahid, Farshid & Issler, Joao Victor, 2002. "The importance of common cyclical features in VAR analysis: a Monte-Carlo study," Journal of Econometrics, Elsevier, Elsevier, vol. 109(2), pages 341-363, August.
  18. Hecq, Alain & Palm, Franz C. & Urbain, Jean-Pierre, 2006. "Common cyclical features analysis in VAR models with cointegration," Journal of Econometrics, Elsevier, Elsevier, vol. 132(1), pages 117-141, May.
  19. Fabio Araujo & Joao Victor Issler, 2005. "Estimating the Stochastic Discount Factor without a Utility Function," Computing in Economics and Finance 2005, Society for Computational Economics 202, Society for Computational Economics.
  20. Hoffman, Dennis L & Rasche, Robert H, 1996. "Assessing Forecast Performance in a Cointegrated System," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 11(5), pages 495-517, Sept.-Oct.
  21. Elliott, Graham, 2006. "Forecasting with Trending Data," Handbook of Economic Forecasting, Elsevier, Elsevier.
  22. Karen E. Dynan, 2000. "Habit Formation in Consumer Preferences: Evidence from Panel Data," American Economic Review, American Economic Association, American Economic Association, vol. 90(3), pages 391-406, June.
  23. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Working Papers, National Bureau of Economic Research, Inc 2924, National Bureau of Economic Research, Inc.
  24. Peter C.B. Phillips & Werner Ploberger, 1999. "Empirical Limits for Time Series Econometric Models," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1220, Cowles Foundation for Research in Economics, Yale University.
  25. John Y. Campbell & N. Gregory Mankiw, 1991. "Permanent Income, Current Income, and Consumption," NBER Working Papers, National Bureau of Economic Research, Inc 2436, National Bureau of Economic Research, Inc.
  26. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 80(4), pages 549-560, November.
  27. Aznar, Antonio & Salvador, Manuel, 2002. "Selecting The Rank Of The Cointegration Space And The Form Of The Intercept Using An Information Criterion," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 18(04), pages 926-947, August.
  28. Saikkonen, Pentti, 1992. "Estimation and Testing of Cointegrated Systems by an Autoregressive Approximation," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 8(01), pages 1-27, March.
  29. Tauchen, George, 1986. "Statistical Properties of Generalized Method-of-Moments Estimators of Structural Parameters Obtained from Financial Market Data," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 4(4), pages 397-416, October.
  30. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(1), pages 134-44, January.
  31. Christoffersen, Peter F & Diebold, Francis X, 1998. "Cointegration and Long-Horizon Forecasting," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 16(4), pages 450-58, October.
  32. Athanasopoulos, George & Vahid, Farshid, 2008. "VARMA versus VAR for Macroeconomic Forecasting," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 26, pages 237-252, April.
  33. Chao, John C. & Phillips, Peter C. B., 1999. "Model selection in partially nonstationary vector autoregressive processes with reduced rank structure," Journal of Econometrics, Elsevier, Elsevier, vol. 91(2), pages 227-271, August.
  34. Vahid, F & Engle, Robert F, 1993. "Common Trends and Common Cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 8(4), pages 341-60, Oct.-Dec..
  35. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 987-1007, July.
  36. Weber, Christian E., 2002. "Intertemporal non-separability and "rule of thumb" consumption," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(2), pages 293-308, March.
  37. Gonzalo, Jesus & Pitarakis, Jean-Yves, 1998. "Specification via model selection in vector error correction models," Economics Letters, Elsevier, Elsevier, vol. 60(3), pages 321-328, September.
  38. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(6), pages 971-87, December.
  39. Phillips, Peter C B, 1996. "Econometric Model Determination," Econometrica, Econometric Society, Econometric Society, vol. 64(4), pages 763-812, July.
  40. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, Elsevier, vol. 21(2-3), pages 309-341.
  41. Runkle, David E., 1991. "Liquidity constraints and the permanent-income hypothesis : Evidence from panel data," Journal of Monetary Economics, Elsevier, Elsevier, vol. 27(1), pages 73-98, February.
  42. Attanasio, Orazio P & Weber, Guglielmo, 1995. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(6), pages 1121-57, December.
  43. Phillips, Peter C B & Ploberger, Werner, 1996. "An Asymptotic Theory of Bayesian Inference for Time Series," Econometrica, Econometric Society, Econometric Society, vol. 64(2), pages 381-412, March.
  44. Attanasio, O.P. & Browning, M.J., 1993. "Consumption over the life cycle and over the business cycle," Discussion Paper, Tilburg University, Center for Economic Research 1993-14, Tilburg University, Center for Economic Research.
  45. Robert F. Engle & João Victor Issler, 1993. "Common trends and common cycles in Latin America," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 47(2), pages 149-176, April.
  46. Weber, Christian E, 1998. "Consumption Spending and the Paper-Bill Spread: Theory and Evidence," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 36(4), pages 575-89, October.
  47. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, Econometric Society, vol. 59(6), pages 1551-80, November.
  48. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, Elsevier, vol. 35(1), pages 143-159, May.
  49. Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 249-65, April.
  50. Phillips, Peter C B & Hansen, Bruce E, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(1), pages 99-125, January.
  51. Clements, M.P. & Hendry, D., 1992. "On the Limitations of Comparing Mean Square Forecast Errors," Economics Series Working Papers, University of Oxford, Department of Economics 99138, University of Oxford, Department of Economics.
  52. repec:fth:harver:1435 is not listed on IDEAS
  53. Clements, M.P. & Hendry, D.F., 1992. "Forecasting in Cointegrated Systems," Economics Series Working Papers, University of Oxford, Department of Economics 99139, University of Oxford, Department of Economics.
  54. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Guillén, Osmani Teixeira de Carvalho & Hecq, Alain & Issler, João Victor & Saraiva, Diogo, 2013. "Forecasting multivariate time series under present-value-model short- and long-run co-movement restrictions," Economics Working Papers (Ensaios Economicos da EPGE), FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) 742, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  2. Peter C.B. Phillips & Degui Li & Jiti Gao, 2013. "Estimating Smooth Structural Change in Cointegration Models," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1910, Cowles Foundation for Research in Economics, Yale University.
  3. Osmani Teixeira de Carvalho Guillén & Alain Hecq & João Victor Issler & Diogo Saraiva, 2013. "Time Series under Present-Value-Model Short- and Long-run Co-movement Restrictions," Working Papers Series, Central Bank of Brazil, Research Department 330, Central Bank of Brazil, Research Department.
  4. Hecq Alain & Laurent Sébastien & Palm Franz, 2011. "Common intraday periodicity," Research Memorandum, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) 010, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  5. Heather M Anderson & Farshid Vahid, 2010. "VARs, Cointegration and Common Cycle Restrictions," Monash Econometrics and Business Statistics Working Papers, Monash University, Department of Econometrics and Business Statistics 14/10, Monash University, Department of Econometrics and Business Statistics.
  6. 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), FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) 728, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  7. Issler, João Victor & Rodrigues, Claudia & Burjack, Rafael, 2014. "Using common features to understand the behavior of metal-commodity prices and forecast them at different horizons," Journal of International Money and Finance, Elsevier, Elsevier, vol. 42(C), pages 310-335.
  8. Ferreira, Pedro Cavalcanti & Pessôa, Samuel & Santos, Marcelo dos, 2014. "Globalization and the Industrial Revolution," Economics Working Papers (Ensaios Economicos da EPGE), FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) 753, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  9. Zhipeng Liao & Peter C.B. Phillips, 2012. "Automated Estimation of Vector Error Correction Models," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1873, Cowles Foundation for Research in Economics, Yale University.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fgv:epgewp:707. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Núcleo de Computação da EPGE).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.