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Determination of long-run and short-run dynamics in EC-VARMA models via canonical correlations
journal contribution
posted on 2023-05-18, 13:02 authored by Athanasopoulos, G, Poskitt, DS, Vahid, F, Yao, WThis article studies a simple, coherent approach for identifying and estimating error-correcting vector autoregressive moving average (EC-VARMA) models. Canonical correlation analysis is implemented for both determining the cointegrating rank, using a strongly consistent method, and identifying the short-run VARMA dynamics, using the scalar component methodology. Finite-sample performance is evaluated via Monte Carlo simulations and the approach is applied to modelling and forecasting US interest rates. The results reveal that EC-VARMA models generate significantly more accurate out-of-sample forecasts than vector error correction models (VECMs), especially for short horizons.
History
Publication title
Journal of Applied EconometricsVolume
31Issue
6Pagination
1100-1119ISSN
1099-1255Department/School
TSBEPublisher
John Wiley & Sons LtdPlace of publication
United KingdomRights statement
Copyright 2015 John Wiley & Sons, Ltd.Repository Status
- Restricted