Economics Seminar: Model selection, estimation and forecasting in VAR models with short-run and long-run restrictions

When?

Wednesday 15 June 2011, 16:00

Where?

04AD00

Open to:

Public, Staff, Students

Speaker:

George Athanasopoulos

George Athanasopoulos  (Monash University) 

“Model selection, estimation and forecasting in VAR models with short-run and long-run restrictions"

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 consider model selection criteria which have data-dependent penalties for a lack of parsimony, as well as the traditional ones. We suggest a new procedure which is a hybrid of traditional criteria and criteria with data-dependant penalties. In order to compute the fit of each model, we propose an iterative procedure to compute the maximum likelihood estimates of parameters of a VAR model with short-run and long-run restrictions. Our Monte Carlo simulations measure the improvements in forecasting accuracy that can arise from the joint determination of lag-length and rank, relative to the commonly used procedure of selecting the lag-length only and then testing for cointegration.