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Evaluating a Global Vector Autoregression for Forecasting

Neil Ericsson () and Erica Reisman ()

International Advances in Economic Research, 2012, vol. 18, issue 3, 247-258

Abstract: Global vector autoregressions (GVARs) have several attractive features: multiple potential channels for the international transmission of macroeconomic and financial shocks, a standardized economically appealing choice of variables for each country or region examined, systematic treatment of long-run properties through cointegration analysis, and flexible dynamic specification through vector error correction modeling. Pesaran et al. ( 2009 ) generate and evaluate forecasts from a paradigm GVAR with 26 countries, based on Dées, di Mauro et al. ( 2007 ). The current paper empirically assesses the GVAR in Dées, di Mauro et al. ( 2007 ) with impulse indicator saturation (IIS)—a new generic procedure for evaluating parameter constancy, which is a central element in model-based forecasting. The empirical results indicate substantial room for an improved, more robust specification of that GVAR. Some tests are suggestive of how to achieve such improvements. Copyright International Atlantic Economic Society 2012

Keywords: Cointegration; Error correction; Forecasting; GVAR; Impulse indicator saturation; Model design; Model evaluation; Model selection; Parameter constancy; VAR; C32; F41 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1007/s11294-012-9357-0

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