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Model reduction in dynamical VAR systems

Author

Listed:
  • Kbiri, Mohammed Alaoui
  • Ghassan, Hassan Belkacem

Abstract

In this paper, we propose an alternative method that applies the model reduction techniques to the VAR framework when the number of variables is sufficiently large. The relevance of the model reduction in the VAR and SVAR systems comes from that the new trajectories preserve the qualitative properties of the initial trajectories. In economic analysis, this allows us to apprehend the underlying phenomena. Also, the resulting model is accurate, computationally less expensive, and based on the real meaning of the system.

Suggested Citation

  • Kbiri, Mohammed Alaoui & Ghassan, Hassan Belkacem, 2019. "Model reduction in dynamical VAR systems," MPRA Paper 122971, University Library of Munich, Germany, revised 2020.
    • Handle: RePEc:pra:mprapa:122971
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    File URL: https://mpra.ub.uni-muenchen.de/122971/1/MPRA_paper_122971.pdf
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    References listed on IDEAS

    as
    1. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    2. Stock, James H. & Watson, Mark W., 2006. "Forecasting with Many Predictors," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 1, chapter 10, pages 515-554, Elsevier.
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    5. Hassan Belkacem Ghassan & Mohammed Souissi & Mohammed Kbiri Alaoui, 2009. "An Alternative Identification of the Economic Shocks in SVAR Models," Economics Bulletin, AccessEcon, vol. 29(2), pages 1019-1026.
    6. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
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    Keywords

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    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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