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VARs, Cointegration and Common Cycle Restrictions
Heather M. Anderson ()
Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics
This paper argues that VAR models with cointegration and common cycles can be usefully viewed as observable factor models. The factors are linear combinations of lagged levels and lagged differences, and as such, these observable factors have potential for forecasting. We illustrate this forecast potential in both a Monte Carlo and empirical setting, and demonstrate the difficulties in developing forecasting "rules of thumb" for forecasting in multivariate systems.
Keywords: Common factors; Cross equation restrictions; Multivariate forecasting; Reduced rank models. (search for similar items in EconPapers)
JEL-codes: C32 C53 E37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-for
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