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

  • Cubadda, Gianluca
  • Hecq, Alain
  • Palm, Franz C.

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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  1. 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.
  2. Zellner, Arnold & Palm, Franz, 1974. "Time series analysis and simultaneous equation econometric models," Journal of Econometrics, Elsevier, vol. 2(1), pages 17-54, May.
  3. Brüggemann, Ralf & Krolzig, Hans-Martin & Lütkepohl, Helmut, 2002. "Comparison of model reduction methods for VAR processes," SFB 373 Discussion Papers 2002,80, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  4. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 1999. "The Generalized Dynamic Factor Model: Identification and Estimation," CEPR Discussion Papers 2338, C.E.P.R. Discussion Papers.
  5. Centoni, Marco & Cubadda, Gianluca & Hecq, Alain, 2003. "Common Shocks, Common Dynamics, and the International Business Cycle," Economics & Statistics Discussion Papers esdp03007, University of Molise, Dept. EGSeI.
  6. 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.
  7. Cubadda, Gianluca & Hecq, Alain, 2001. "On non-contemporaneous short-run co-movements," Economics Letters, Elsevier, vol. 73(3), pages 389-397, December.
  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.
  9. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(4), pages 369-80, October.
  10. Alain Hecq & Franz Palm & Jean-Pierre Urbain, 2002. "Separation, Weak Exogeneity and P-T Decomposition in Cointegrated VAR Systems with Common Features," CESifo Working Paper Series 660, CESifo Group Munich.
  11. 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.
  12. Gianluca Cubadda, 2007. "A Unifying Framework for Analysing Common Cyclical Features in Cointegrated Time Series," CEIS Research Paper 102, Tor Vergata University, CEIS.
  13. ZELLNER, Arnold & PALM, Franz, . "Time series and structural analysis of monetary models of the U.S. economy," CORE Discussion Papers RP -247, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  14. 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..
  15. Jushan Bai & Serena Ng, 2001. "A Panic Attack on Unit Roots and Cointegration," Economics Working Paper Archive 469, The Johns Hopkins University,Department of Economics.
  16. repec:fgv:epgrbe:v:47:n:2:a:1 is not listed on IDEAS
  17. Vahid, Farshid & Engle, Robert F., 1997. "Codependent cycles," Journal of Econometrics, Elsevier, vol. 80(2), pages 199-221, October.
  18. repec:cup:cbooks:9780521814072 is not listed on IDEAS
  19. repec:hal:journl:hal-00287137 is not listed on IDEAS
  20. 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.
  21. Cubadda, Gianluca & Hecq, Alain & Palm, Franz C., 2007. "Macro-panels and Reality," Research Memorandum 009, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  22. Christoph Schleicher, 2004. "Codependence in Cointegrated Autoregressive Models," Computing in Economics and Finance 2004 286, Society for Computational Economics.
  23. 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.
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