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Lag-length Selection in VAR-models Using Equal and Unequal Lag-Length Procedures

Author

Listed:
  • Gredenhoff, Mikael

    (Dept. of Economic Statistics, Stockholm School of Economics)

  • Karlsson, Sune

    () (Dept. of Economic Statistics, Stockholm School of Economics)

Abstract

It is well known that inference in vector autoregressive models depends crucially on the choice of lag-length. Various lag-length selection procedures have been suggested and evaluated in the literature. In these evaluations the possibility that the true model may have unequal lag-length has, however, received little attention. In this paper we investigate how sensitive lag-length estimation procedures, based on assumptions of equal or unequal lag-lengths, are to the true model structure. The procedures used in the paper are based on information criteria and we give results for AIC, HQ and BIC. In the Monte Carlo study we generate data from a variety of VAR-models with properties similar to macro-economic time-series. We find that the commonly used procedure based on equal lag-length together with AIC and HQ performs well in most cases. The procedure (due to Hsiao) allowing for unequal lag-lengths produce reasonable results when the true model has unequal lag-length. The Hsiao procedure also tend to do better in models with a more complicated lag structure.

Suggested Citation

  • Gredenhoff, Mikael & Karlsson, Sune, 1997. "Lag-length Selection in VAR-models Using Equal and Unequal Lag-Length Procedures," SSE/EFI Working Paper Series in Economics and Finance 177, Stockholm School of Economics.
  • Handle: RePEc:hhs:hastef:0177
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    Citations

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    Cited by:

    1. Janakiramanan, Sundaram & Lamba, Asjeet S., 1998. "An empirical examination of linkages between Pacific-Basin stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 8(2), pages 155-173, June.
    2. Dietmar Maringer & Peter Winker, 2004. "Optimal Lag Structure Selection in VEC-Models," Computing in Economics and Finance 2004 155, Society for Computational Economics.
    3. Yang, Jack J. W., 2002. "The information spillover between stock returns and institutional investors' trading behavior in Taiwan," International Review of Financial Analysis, Elsevier, vol. 11(4), pages 533-547.

    More about this item

    Keywords

    Vector autoregression; Order selection; Information Criteria; Monte Carlo simulation.;

    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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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