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General-to-Specific Model Selection Procedures for Structural Vector Autoregressions

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  • Hans-Martin Krolzig

    ()
    (Department of Economics, and Nuffield College, Oxford University)

Abstract

Structural vector autoregressive (SVAR) models have emerged as a dominant research strategy in empirical macroeconomics, but suffer from the large number of parameters employed and the resulting estimation uncertainty associated with their impulse responses. In this paper we propose general-to-specific model selection procedures to overcome these limitations. After showing that single-equation procedures are efficient for the reduction of the SVAR, but generally not for the reduction of its reduced form, the proposed reduction procedure is computer-automated using PcGets and its small-sample properties are evaluated in a realistic Monte Carlo experiment. The model selection procedure is shown to recover the DGP specification from a large unrestricted SVAR model with controlled size and power. The impulse responses generated by the selected SVAR are compared to those of the unrestricted and reduced VAR and found to be more precise and accurate. The proposed reduction strategy is then applied to the US monetary system considered by Christiano, Eichenbaum and Evans (1996). Although the selection process is hampered by the misspecification of the unrestricted VAR, the results are consistent with the Monte Carlo and question the validity of the impulses responses generated by the full system.

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Bibliographic Info

Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2003-W15.

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Length: 24 pages
Date of creation: 01 Mar 2003
Date of revision:
Handle: RePEc:nuf:econwp:0315

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Web page: http://www.nuff.ox.ac.uk/economics/

Related research

Keywords: Model selection; Impulse responses; Vector autoregression; Structural VAR; Causal order; Data mining;

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References

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  1. Kevin D. Hoover & Stephen J. Perez, . "Data Mining Reconsidered: Encompassing And The General-To-Specific Approach To Specification Search," Department of Economics, California Davis - Department of Economics 97-27, California Davis - Department of Economics.
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Cited by:
  1. Allen, P. Geoffrey & Morzuch, Bernard J., 2006. "Twenty-five years of progress, problems, and conflicting evidence in econometric forecasting. What about the next 25 years?," International Journal of Forecasting, Elsevier, Elsevier, vol. 22(3), pages 475-492.
  2. Bonham, Carl & Gangnes, Byron & Zhou, Ting, 2009. "Modeling tourism: A fully identified VECM approach," International Journal of Forecasting, Elsevier, Elsevier, vol. 25(3), pages 531-549, July.
  3. Lein-Rupprecht, Sarah M. & León-Ledesma, Miguel A. & Nerlich, Carolin, 2007. "How is real convergence driving nominal convergence in the new EU Member States?," Working Paper Series, European Central Bank 0827, European Central Bank.
  4. Genaro Sucarrat & Alvaro Escribano, 2009. "Automated financial multi-path GETS modelling," Economics Working Papers we093620, Universidad Carlos III, Departamento de Economía.
  5. Alvaro Escribano & Genaro Sucarrat, 2011. "Automated model selection in finance: General-to-speci c modelling of the mean and volatility speci cations," Working Papers, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales 2011-09, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  6. Allison Zhou & Carl Bonham & Byron Gangnes, 2007. "Modeling the supply and demand for tourism: a fully identified VECM approach," Working Papers, University of Hawaii at Manoa, Department of Economics 200717, University of Hawaii at Manoa, Department of Economics.
  7. Pu Chen & Chih-Ying Hsiao, 2010. "Causal Inference for Structural Equations: With an Application to Wage-Price Spiral," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 36(1), pages 17-36, June.
  8. David F. Hendry & Hans-Martin Krolzig, 2003. "Sub-sample Model Selection Procedures in Gets Modelling," Economics Papers, Economics Group, Nuffield College, University of Oxford 2003-W17, Economics Group, Nuffield College, University of Oxford.
  9. Abhijit Sharma & Kelvin G Balcombe & Iain M Fraser, 2009. "Non-renewable resource prices: Structural breaks and long term trends," Economics Bulletin, AccessEcon, vol. 29(2), pages 805-819.
  10. Carl Bonham & Call Wiemer, 2010. "Chinese Saving Dynamics: The Impact of GDP Growth and the Dependent Share," Working Papers, University of Hawaii at Manoa, Department of Economics 201019, University of Hawaii at Manoa, Department of Economics.
  11. Julia Campos & Neil R. Ericsson & David F. Hendry, 2005. "General-to-specific modeling: an overview and selected bibliography," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 838, Board of Governors of the Federal Reserve System (U.S.).

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