VAR Models With An Index Structure: A Survey With New Results

Gianluca Cubadda
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Gianluca Cubadda: CEIS & DEF, Università di Roma "Tor Vergata", http://www.ceistorvergata.it

No 611, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: The main aim of this paper is to review recent advances in the multivariate autoregressive index model [MAI], originally proposed by Reinsel (1983), and their applications to economic and ?nancial time series. MAI has recently gained momentum because it can be seen as a link between two popular but distinct multivariate time series approaches: vector autoregressive modeling [VAR] and the dynamic factor model [DFM]. Indeed, on the one hand, the MAI is a VAR model with a peculiar reduced-rank structure; on the other hand, it allows for identi?cation of common components and common shocks in a similar way as the DFM. The focus is on recent developments of the MAI, which include extending the original model with individual autoregressive structures, stochastic volatility, time-varying parameters, high-dimensionality, and cointegration. In addition, new insights on previous contributions and a novel model are also provided.

Keywords: Multivariate autoregressive index models; vector autoregressive models; dynamic factor models; reduced-rank regression (search for similar items in EconPapers)
Pages: 21 pages
Date: 2025-09-22, Revised 2025-09-22
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