Two Canonical VARMA Forms: Scalar Component Models Vis-à-Vis the Echelon Form

George Athanasopoulos (), Donald Poskitt and Farshid Vahid

Econometric Reviews, 2012, vol. 31, issue 1, 60-83

Abstract: In this article we study two methodologies which identify and specify canonical form VARMA models. The two methodologies are: (1) an extension of the scalar component methodology which specifies canonical VARMA models by identifying scalar components through canonical correlations analysis; and (2) the Echelon form methodology, which specifies canonical VARMA models through the estimation of Kronecker indices. We compare the actual forms and the methodologies on three levels. Firstly, we present a theoretical comparison. Secondly, we present a Monte Carlo simulation study that compares the performances of the two methodologies in identifying some pre-specified data generating processes. Lastly, we compare the out-of-sample forecast performance of the two forms when models are fitted to real macroeconomic data.

Date: 2012
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Working Paper: Two canonical VARMA forms: Scalar component models vis-à-vis the Echelon form (2009)
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DOI: 10.1080/07474938.2011.607088

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