Penalized estimation of panel vector autoregressive models: A panel LASSO approach

Annika Camehl

International Journal of Forecasting, 2023, vol. 39, issue 3, 1185-1204

Abstract: This paper proposes LASSO estimation specific for panel vector autoregressive (PVAR) models. The penalty term allows for shrinkage for different lags, for shrinkage towards homogeneous coefficients across panel units, for penalization of lags of variables belonging to another cross-sectional unit, and for varying penalization across equations. The penalty parameters therefore build on time series and cross-sectional properties that are commonly found in PVAR models. Simulation results point towards advantages of using the proposed LASSO for PVAR models over ordinary least squares in terms of forecast accuracy. An empirical forecasting application including 20 countries supports these findings.

Keywords: Forecasting; Model selection; Multi-country model; Shrinkage estimation; Sparse estimation (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:39:y:2023:i:3:p:1185-1204

DOI: 10.1016/j.ijforecast.2022.05.007

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