Model selection, estimation and forecasting in VAR models with short-run and long-run restrictions

George Athanasopoulos (), Osmani Guillén, João Issler and Farshid Vahid

No 2/09, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: We study the joint determination of the lag length, the dimension of the cointegrating space and the rank of the matrix of short-run parameters of a vector autoregressive (VAR) model using model selection criteria. We consider model selection criteria which have data-dependent penalties for a lack of parsimony, as well as the traditional ones. We suggest a new procedure which is a hybrid of traditional criteria with data-dependant penalties. In order to compute the fit of each model, we propose an iterative procedure to compute the maximum likelihood estimates of parameters of a VAR model with short-run and long-run restrictions. Our Monte Carlo simulations measure the improvements in forecasting accuracy that can arise from the joint determination of lag-length and rank, relative to the commonly used procedure of selecting the lag-length only and then testing for cointegration.

Keywords: Reduced rank models; model selection criteria; forecasting accuracy (search for similar items in EconPapers)
JEL-codes: C32 C53 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2009-02
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Model selection, estimation and forecasting in VAR models with short-run and long-run restrictions (2011)
Working Paper: Model selection, estimation and forecasting in VAR models with short-run and long-run restrictions (2011)
Working Paper: Model selection, Estimation and Forecasting in VAR Models with Short-run and Long-run Restrictions (2010)
Working Paper: Model selection, estimation and forecasting in VAR models with short-run and long-run restrictions (2010)
Working Paper: Model selection, estimation and forecasting in VAR models with short-run and long-run restrictions (2010)
Working Paper: Model selection, estimation and forecasting in VAR models with short-run and long-run restrictions (2009)
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