Selection of Optimal Lag Length in Cointegrated VAR Models with Weak Form of Common Cyclical Features

Carlos Enrique Carrasco Gutierrez, Reinaldo Castro Souza and Osmani Guillén
Authors registered in the RePEc Author Service: Carlos Enrique Carrasco-Gutierrez

MPRA Paper from University Library of Munich, Germany

Abstract: An important aspect of empirical research based on the vector autoregressive (VAR) model is the choice of the lag order, since all inferences in this model depend on the correct model specification. There have been many studies of how to select the lag order of a nonstationary VAR model subject to cointegration restrictions. In this work, we consider in the model an additional weak form (WF) restriction of common cyclical features to analyze the appropriate way to select the correct lag order. We use two methodologies: the traditional information criteria (AIC, HQ and SC) and an alternative criterion (IC(p;s)) that selects the lag order p and the rank structure, s, due to the WF restriction. We use a Monte-Carlo simulation in the analysis. The results indicate that the cost of ignoring additional WF restrictions in vector autoregressive modeling can be high, especially when the SC criterion is used.

Keywords: Cointegration; Common Cyclical Features; Reduced Rank Model; Information Criteria (search for similar items in EconPapers)
JEL-codes: C32 C53 (search for similar items in EconPapers)
Date: 2009, Revised 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published in Brazilian Review of Econometrics 1.29(2009): pp. 59-78

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Related works:
Journal Article: Selection of Optimal Lag Length in Cointegrated VAR Models with Weak Form of Common Cyclical Features (2009)
Working Paper: Selection of Optimal Lag Length in Cointegrated VAR Models with Weak Form of Common Cyclical Features (2009)
Working Paper: Selection of optimal lag length in cointegrated VAR models with weak form of common cyclical features (2009)
Working Paper: Selection of Optimal Lag Length in Cointegrated VAR Models with Weak Form of Common Cyclical Features (2007)
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