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Are VAR Models Good Enough?

Author

Listed:
  • Farshid Vahid
  • George Athanasopoulos

Abstract

VAR models are used in practice in preference to VARMA models due to the difficult issues involved in the identification and estimation of VARMA models. This paper examines if VAR models are good enough for forecasting macroeconomic variables. To answer this question, we extend the Tiao and Tsay identification procedure for VARMA models and proposes a complete VARMA modelling procedure. We then examine the properties of this identification procedure through simulation and used it to determine VARMA models for many trivariate sets of macroeconomic variables and compare the out-of-sample forecasting performance of these models against VAR models fitted to the same da

Suggested Citation

  • Farshid Vahid & George Athanasopoulos, 2004. "Are VAR Models Good Enough?," Econometric Society 2004 Australasian Meetings 244, Econometric Society.
  • Handle: RePEc:ecm:ausm04:244
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    More about this item

    Keywords

    Multivariate time series models; VARMA models; identification; forecasting.;

    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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