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Codependent VAR Models and the Pseudo-Structural Form

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  • Trenkler, Carsten
  • Weber, Enzo

Abstract

This paper investigates whether codependence restrictions can be uniquely imposed on VAR and VEC models via the so-called pseudo-structural form used in the literature. Codependence of order q is given if a linear combination of autocorrelated variables eliminates the serial correlation after q lags. Importantly, maximum likelihood estimation and likelihood ratio testing are only possible if the codependence restrictions can be uniquely imposed. Applying the pseudo-structural form, our study reveals that this is not generally the case, but that unique imposition is guaranteed in several important special cases. Moreover, we discuss further issues, in particular upper bounds of the codependence order.

Suggested Citation

  • Trenkler, Carsten & Weber, Enzo, 2012. "Codependent VAR Models and the Pseudo-Structural Form," University of Regensburg Working Papers in Business, Economics and Management Information Systems 465, University of Regensburg, Department of Economics.
  • Handle: RePEc:bay:rdwiwi:24776
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    References listed on IDEAS

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    1. Trenkler, Carsten & Weber, Enzo, 2010. "Testing for Codependence of Non-Stationary Variables," University of Regensburg Working Papers in Business, Economics and Management Information Systems 446, University of Regensburg, Department of Economics.
    2. Vahid, F & Engle, Robert F, 1993. "Common Trends and Common Cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., pages 341-360.
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    4. Cubadda, Gianluca & Hecq, Alain, 2001. "On non-contemporaneous short-run co-movements," Economics Letters, Elsevier, pages 389-397.
    5. Carsten Trenkler & Enzo Weber, 2013. "Codependent VAR models and the pseudo-structural form," AStA Advances in Statistical Analysis, Springer;German Statistical Society, pages 287-295.
    6. Franchi, Massimo & Paruolo, Paolo, 2011. "A characterization of vector autoregressive processes with common cyclical features," Journal of Econometrics, Elsevier, pages 105-117.
    7. Christoph Schleicher, 2004. "Codependence in Cointegrated Autoregressive Models," Computing in Economics and Finance 2004 286, Society for Computational Economics.
    8. Christoph Schleicher, 2007. "Codependence in cointegrated autoregressive models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., pages 137-159.
    9. repec:fgv:epgrbe:v:47:n:2:a:1 is not listed on IDEAS
    10. Vahid, Farshid & Engle, Robert F., 1997. "Codependent cycles," Journal of Econometrics, Elsevier, pages 199-221.
    11. Trenkler, Carsten & Weber, Enzo, 2012. "Identifying the Shocks behind Business Cycle Asynchrony in Euroland," Working Papers 12-11, University of Mannheim, Department of Economics.
    12. Hansen, Lars Peter & Jagannathan, Ravi, 1991. "Implications of Security Market Data for Models of Dynamic Economies," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 225-262, April.
    13. Carsten Trenkler & Enzo Weber, 2013. "Codependent VAR models and the pseudo-structural form," AStA Advances in Statistical Analysis, Springer;German Statistical Society, pages 287-295.
    14. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features," Journal of Business & Economic Statistics, American Statistical Association, pages 369-380.
    15. Vahid, Farshid & Issler, Joao Victor, 2002. "The importance of common cyclical features in VAR analysis: a Monte-Carlo study," Journal of Econometrics, Elsevier, pages 341-363.
    16. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
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    Cited by:

    1. Trenkler, Carsten & Weber, Enzo, 2012. "Identifying the Shocks behind Business Cycle Asynchrony in Euroland," Working Papers 12-11, University of Mannheim, Department of Economics.
    2. Carsten Trenkler & Enzo Weber, 2013. "Codependent VAR models and the pseudo-structural form," AStA Advances in Statistical Analysis, Springer;German Statistical Society, pages 287-295.
    3. Trenkler, Carsten & Weber, Enzo, 2012. "Identifying the Shocks behind Business Cycle Asynchrony in Euroland," Working Papers 12-11, University of Mannheim, Department of Economics.
    4. Carsten Trenkler & Enzo Weber, 2013. "Codependent VAR models and the pseudo-structural form," AStA Advances in Statistical Analysis, Springer;German Statistical Society, pages 287-295.
    5. Marcel Gorenflo, 2013. "Futures price dynamics of CO 2 emission allowances," Empirical Economics, Springer, pages 1025-1047.

    More about this item

    Keywords

    Codependence; VAR; cointegration; pseudo-structural form; serial correlation common features;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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