Model selection, estimation and forecasting in VAR models with short-run and long-run restrictions |
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Authors: | George AthanasopoulosOsmani Teixeira de Carvalho Guillén João Victor Issler Farshid Vahid |
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Institution: | a Department of Econometrics and Business Statistics, Monash University, Australiab Banco Central do Brasil and Ibmec-RJ, Rio de Janeiro, Brazilc Graduate School of Economics-EPGE, Getulio Vargas Foundation, Praia de Botafogo 190 s. 1111, Rio de Janeiro, RJ 22253-900, Brazil |
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Abstract: | We study the joint determination of the lag length, the dimension of the cointegrating space and the rank of the matrix of short-run parameters of a vector autoregressive (VAR) model using model selection criteria. We suggest a new two-step model selection procedure which is a hybrid of traditional criteria and criteria with data-dependant penalties and we prove its consistency. A Monte Carlo study explores the finite sample performance of this procedure and evaluates the forecasting accuracy of models selected by this procedure. Two empirical applications confirm the usefulness of the model selection procedure proposed here for forecasting. |
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Keywords: | C32 C53 |
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