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VARs, Cointegration and Common Cycle Restrictions

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  • Heather M Anderson

    ()

  • Farshid Vahid

    ()

Abstract

This paper argues that VAR models with cointegration and common cycles can be usefully viewed as observable factor models. The factors are linear combinations of lagged levels and lagged differences, and as such, these observable factors have potential for forecasting. We illustrate this forecast potential in both a Monte Carlo and empirical setting, and demonstrate the difficulties in developing forecasting "rules of thumb" for forecasting in multivariate systems.

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File URL: http://www.buseco.monash.edu.au/ebs/pubs/wpapers/2010/wp14-10.pdf
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Bibliographic Info

Paper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 14/10.

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Length: 50 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:msh:ebswps:2010-14

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Related research

Keywords: Common factors; Cross equation restrictions; Multivariate forecasting; Reduced rank models.;

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References

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  1. Athanasopoulos, George & Guillén, Osmani Teixeira de Carvalho & Issler, João Victor & Vahid, Farshid, 2010. "Model selection, estimation and forecasting in VAR models with short-run and long-run restrictions," Economics Working Papers (Ensaios Economicos da EPGE) 707, Graduate School of Economics, Getulio Vargas Foundation (Brazil).
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Cited by:
  1. Bicu Andreea & Candelon Bertrand, 2012. "Government bond market dynamics and sovereign risk: systemic or idiosyncratic?," Research Memoranda 032, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.

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