TY - JOUR
T1 - Determination of long-run and short-run dynamics in EC-VARMA models via canonical correlations
AU - Athanasopoulos, George
AU - Poskitt, Donald S.
AU - Vahid, Farshid
AU - Yao, Wenying
PY - 2016/9/1
Y1 - 2016/9/1
N2 - This 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.
AB - This 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.
UR - http://www.scopus.com/inward/record.url?scp=84941783688&partnerID=8YFLogxK
U2 - 10.1002/jae.2484
DO - 10.1002/jae.2484
M3 - Article
AN - SCOPUS:84941783688
VL - 31
SP - 1100
EP - 1119
JO - Journal of Applied Econometrics
JF - Journal of Applied Econometrics
SN - 0883-7252
IS - 6
ER -