Two canonical VARMA forms: Scalar component models vis-à-vis the Echelon form
In this paper we study two methodologies which identify and specify canonical form VARMA models. The two methodologies are: (i) an extension of the scalar component methodology which specifies canonical VARMA models by identifying scalar components through canonical correlations analysis and (ii) the Echelon form methodology which specifies canonical VARMA models through the estimation of Kronecker indices. We compare the actual forms and the methodologies on three levels. Firstly we present a theoretical comparison. Secondly, we present a Monte-Carlo simulation study that compares the performance of the two methodologies in identifying some pre-specified data generating processes. Lastly we compare the out-of-sample forecast performance of the two forms when models are fitted to real macroeconomic data.
|Date of creation:||Jul 2007|
|Date of revision:||May 2009|
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