Two canonical VARMA forms: Scalar component models vis-a-vis the Echelon form

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Abstract

In this article we study two methodologies which identify and specify canonical form VARMA models. The two methodologies are: (1) an extension of the scalar component methodology which specifies canonical VARMA models by identifying scalar components through canonical correlations analysis; and (2) the Echelon form methodology, which specifies canonical VARMA models through the estimation of Kronecker indices. We compare the actual forms and the methodologies on three levels. Firstly, we present a theoretical comparison. Secondly, we present a Monte Carlo simulation study that compares the performances of the two methodologies in identifying some pre-specified data generating processes. Lastly, we compare the out-of-sample forecast performance of the two forms when models are fitted to real macroeconomic data.
Original languageEnglish
Pages (from-to)60 - 83
Number of pages24
JournalEconometric Reviews
Volume31
Issue number1
DOIs
Publication statusPublished - 2012

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