Forecasting accuracy and estimation uncertainty using VAR models with short- and long-term economic restrictions: a Monte-Carlo study
Autor(a) principal: | |
---|---|
Data de Publicação: | 2005 |
Outros Autores: | , |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Institucional do FGV (FGV Repositório Digital) |
Texto Completo: | http://hdl.handle.net/10438/358 |
Resumo: | Using vector autoregressive (VAR) models and Monte-Carlo simulation methods we investigate the potential gains for forecasting accuracy and estimation uncertainty of two commonly used restrictions arising from economic relationships. The Örst reduces parameter space by imposing long-term restrictions on the behavior of economic variables as discussed by the literature on cointegration, and the second reduces parameter space by imposing short-term restrictions as discussed by the literature on serial-correlation common features (SCCF). Our simulations cover three important issues on model building, estimation, and forecasting. First, we examine the performance of standard and modiÖed information criteria in choosing lag length for cointegrated VARs with SCCF restrictions. Second, we provide a comparison of forecasting accuracy of Ötted VARs when only cointegration restrictions are imposed and when cointegration and SCCF restrictions are jointly imposed. Third, we propose a new estimation algorithm where short- and long-term restrictions interact to estimate the cointegrating and the cofeature spaces respectively. We have three basic results. First, ignoring SCCF restrictions has a high cost in terms of model selection, because standard information criteria chooses too frequently inconsistent models, with too small a lag length. Criteria selecting lag and rank simultaneously have a superior performance in this case. Second, this translates into a superior forecasting performance of the restricted VECM over the VECM, with important improvements in forecasting accuracy ñreaching more than 100% in extreme cases. Third, the new algorithm proposed here fares very well in terms of parameter estimation, even when we consider the estimation of long-term parameters, opening up the discussion of joint estimation of short- and long-term parameters in VAR models. |
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Athanasopoulos, GeorgeIssler, João VictorGuillen, Osmani Teixeira CarvalhoEscolas::EPGEFGV2008-05-13T15:22:53Z2008-05-13T15:22:53Z2005-04-010104-8910http://hdl.handle.net/10438/358Using vector autoregressive (VAR) models and Monte-Carlo simulation methods we investigate the potential gains for forecasting accuracy and estimation uncertainty of two commonly used restrictions arising from economic relationships. The Örst reduces parameter space by imposing long-term restrictions on the behavior of economic variables as discussed by the literature on cointegration, and the second reduces parameter space by imposing short-term restrictions as discussed by the literature on serial-correlation common features (SCCF). Our simulations cover three important issues on model building, estimation, and forecasting. First, we examine the performance of standard and modiÖed information criteria in choosing lag length for cointegrated VARs with SCCF restrictions. Second, we provide a comparison of forecasting accuracy of Ötted VARs when only cointegration restrictions are imposed and when cointegration and SCCF restrictions are jointly imposed. Third, we propose a new estimation algorithm where short- and long-term restrictions interact to estimate the cointegrating and the cofeature spaces respectively. We have three basic results. First, ignoring SCCF restrictions has a high cost in terms of model selection, because standard information criteria chooses too frequently inconsistent models, with too small a lag length. Criteria selecting lag and rank simultaneously have a superior performance in this case. Second, this translates into a superior forecasting performance of the restricted VECM over the VECM, with important improvements in forecasting accuracy ñreaching more than 100% in extreme cases. Third, the new algorithm proposed here fares very well in terms of parameter estimation, even when we consider the estimation of long-term parameters, opening up the discussion of joint estimation of short- and long-term parameters in VAR models.engFundação Getulio Vargas. Escola de Pós-graduação em EconomiaEnsaios Econômicos;589Reduced rank modelsModel selection criteriaForecasting accuracyEconomiaEconomiaExpectativas racionais (Teoria econômica)Monte Carlo, Método dePrevisão econômica - Modelos econométricosForecasting accuracy and estimation uncertainty using VAR models with short- and long-term economic restrictions: a Monte-Carlo studyinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articlereponame:Repositório Institucional do FGV (FGV Repositório Digital)instname:Fundação Getulio Vargas (FGV)instacron:FGVinfo:eu-repo/semantics/openAccessORIGINAL1823.pdfapplication/pdf356166https://repositorio.fgv.br/bitstreams/f0e7073d-b06a-4256-a49b-d127e7b6b092/download4ece56e391b5593bcf3f89645bb31d4eMD51TEXT1823.pdf.txt1823.pdf.txtExtracted texttext/plain101513https://repositorio.fgv.br/bitstreams/5555b9a6-a7f4-4cb0-86b8-2df839695019/downloade4e041493cc45af85b94c87e1902b153MD56THUMBNAIL1823.pdf.jpg1823.pdf.jpgGenerated Thumbnailimage/jpeg3459https://repositorio.fgv.br/bitstreams/29fd1249-13ef-474b-bef4-ae193c840a62/download337c490c72f3586b3a7cfb888ee5a957MD5710438/3582023-11-09 15:44:50.425open.accessoai:repositorio.fgv.br:10438/358https://repositorio.fgv.brRepositório InstitucionalPRIhttp://bibliotecadigital.fgv.br/dspace-oai/requestopendoar:39742023-11-09T15:44:50Repositório Institucional do FGV (FGV Repositório Digital) - Fundação Getulio Vargas (FGV)false |
dc.title.eng.fl_str_mv |
Forecasting accuracy and estimation uncertainty using VAR models with short- and long-term economic restrictions: a Monte-Carlo study |
title |
Forecasting accuracy and estimation uncertainty using VAR models with short- and long-term economic restrictions: a Monte-Carlo study |
spellingShingle |
Forecasting accuracy and estimation uncertainty using VAR models with short- and long-term economic restrictions: a Monte-Carlo study Athanasopoulos, George Reduced rank models Model selection criteria Forecasting accuracy Economia Economia Expectativas racionais (Teoria econômica) Monte Carlo, Método de Previsão econômica - Modelos econométricos |
title_short |
Forecasting accuracy and estimation uncertainty using VAR models with short- and long-term economic restrictions: a Monte-Carlo study |
title_full |
Forecasting accuracy and estimation uncertainty using VAR models with short- and long-term economic restrictions: a Monte-Carlo study |
title_fullStr |
Forecasting accuracy and estimation uncertainty using VAR models with short- and long-term economic restrictions: a Monte-Carlo study |
title_full_unstemmed |
Forecasting accuracy and estimation uncertainty using VAR models with short- and long-term economic restrictions: a Monte-Carlo study |
title_sort |
Forecasting accuracy and estimation uncertainty using VAR models with short- and long-term economic restrictions: a Monte-Carlo study |
author |
Athanasopoulos, George |
author_facet |
Athanasopoulos, George Issler, João Victor Guillen, Osmani Teixeira Carvalho |
author_role |
author |
author2 |
Issler, João Victor Guillen, Osmani Teixeira Carvalho |
author2_role |
author author |
dc.contributor.unidadefgv.por.fl_str_mv |
Escolas::EPGE |
dc.contributor.affiliation.none.fl_str_mv |
FGV |
dc.contributor.author.fl_str_mv |
Athanasopoulos, George Issler, João Victor Guillen, Osmani Teixeira Carvalho |
dc.subject.por.fl_str_mv |
Reduced rank models Model selection criteria Forecasting accuracy |
topic |
Reduced rank models Model selection criteria Forecasting accuracy Economia Economia Expectativas racionais (Teoria econômica) Monte Carlo, Método de Previsão econômica - Modelos econométricos |
dc.subject.area.por.fl_str_mv |
Economia |
dc.subject.bibliodata.por.fl_str_mv |
Economia Expectativas racionais (Teoria econômica) Monte Carlo, Método de Previsão econômica - Modelos econométricos |
description |
Using vector autoregressive (VAR) models and Monte-Carlo simulation methods we investigate the potential gains for forecasting accuracy and estimation uncertainty of two commonly used restrictions arising from economic relationships. The Örst reduces parameter space by imposing long-term restrictions on the behavior of economic variables as discussed by the literature on cointegration, and the second reduces parameter space by imposing short-term restrictions as discussed by the literature on serial-correlation common features (SCCF). Our simulations cover three important issues on model building, estimation, and forecasting. First, we examine the performance of standard and modiÖed information criteria in choosing lag length for cointegrated VARs with SCCF restrictions. Second, we provide a comparison of forecasting accuracy of Ötted VARs when only cointegration restrictions are imposed and when cointegration and SCCF restrictions are jointly imposed. Third, we propose a new estimation algorithm where short- and long-term restrictions interact to estimate the cointegrating and the cofeature spaces respectively. We have three basic results. First, ignoring SCCF restrictions has a high cost in terms of model selection, because standard information criteria chooses too frequently inconsistent models, with too small a lag length. Criteria selecting lag and rank simultaneously have a superior performance in this case. Second, this translates into a superior forecasting performance of the restricted VECM over the VECM, with important improvements in forecasting accuracy ñreaching more than 100% in extreme cases. Third, the new algorithm proposed here fares very well in terms of parameter estimation, even when we consider the estimation of long-term parameters, opening up the discussion of joint estimation of short- and long-term parameters in VAR models. |
publishDate |
2005 |
dc.date.issued.fl_str_mv |
2005-04-01 |
dc.date.accessioned.fl_str_mv |
2008-05-13T15:22:53Z |
dc.date.available.fl_str_mv |
2008-05-13T15:22:53Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10438/358 |
dc.identifier.issn.none.fl_str_mv |
0104-8910 |
identifier_str_mv |
0104-8910 |
url |
http://hdl.handle.net/10438/358 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.ispartofseries.por.fl_str_mv |
Ensaios Econômicos;589 |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.publisher.none.fl_str_mv |
Fundação Getulio Vargas. Escola de Pós-graduação em Economia |
publisher.none.fl_str_mv |
Fundação Getulio Vargas. Escola de Pós-graduação em Economia |
dc.source.none.fl_str_mv |
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FGV |
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