The importance of Common-Cyclical Features in VAR analysis: a Monte-Carlo study (Preliminary Version)


Autoria(s): Vahid, Farshid; Issler, João Pedro
Data(s)

13/05/2008

23/09/2010

13/05/2008

23/09/2010

01/09/1999

Resumo

Despite the belief, supported byrecentapplied research, thataggregate datadisplay short-run comovement, there has been little discussion about the econometric consequences ofthese data “features.” W e use exhaustive M onte-Carlo simulations toinvestigate theimportance ofrestrictions implied by common-cyclicalfeatures for estimates and forecasts based on vectorautoregressive and errorcorrection models. First, weshowthatthe“best” empiricalmodeldevelopedwithoutcommoncycles restrictions neednotnestthe“best” modeldevelopedwiththoserestrictions, duetothe use ofinformation criteria forchoosingthe lagorderofthe twoalternative models. Second, weshowthatthecosts ofignoringcommon-cyclicalfeatures inV A R analysis may be high in terms offorecastingaccuracy and e¢ciency ofestimates ofvariance decomposition coe¢cients. A lthough these costs are more pronounced when the lag orderofV A R modelsareknown, theyarealsonon-trivialwhenitis selectedusingthe conventionaltoolsavailabletoappliedresearchers. T hird, we…ndthatifthedatahave common-cyclicalfeatures andtheresearcherwants touseaninformationcriterium to selectthelaglength, theH annan-Q uinn criterium is themostappropriate, sincethe A kaike and theSchwarz criteriahave atendency toover- and under-predictthe lag lengthrespectivelyinoursimulations.

Identificador

0104-8910

http://hdl.handle.net/10438/971

Idioma(s)

en_US

Publicador

Escola de Pós-Graduação em Economia da FGV

Relação

Ensaios Econômicos;352

Palavras-Chave #Economia #Ciclos econômicos #Método de Monte Carlo
Tipo

Working Paper