Improving Global Vector Autoregressions

Global vector autoregressions (GVARs) have several attractive features: a standardized economically appealing choice of variables for each country or region examined, a systematic treatment of long-run properties through cointegration analysis, and flexible dynamic specification through vector error correction modeling. The current paper re-examines the theoretical and empirical underpinnings for GVARs, focusing on exogeneity assumptions, parameter constancy, and data aggregation. This paper proposes refinements in these areas, with the aim of achieving an even more robust approach to GVAR modeling. The GVAR in Dées, di Mauro, Pesaran, and Smith (2007) is used to illustrate these refinements.

[1]  I. Vansteenkiste,et al.  International trade, technological shocks and spillovers in the labour market: a GVAR analysis of the US manufacturing sector , 2007 .

[2]  Anindya Banerjee,et al.  TESTING INTEGRATION AND COINTEGRATION: AN OVERVIEW , 1992 .

[3]  David F. Hendry,et al.  Co-Integration, Error Correction, and the Econometric Analysis of Non-Stationary Data , 1993, Advanced texts in econometrics.

[4]  G. Chow.  Tests of equality between sets of coefficients in two linear regressions (econometrics voi 28 , 1960 .

[5]  A. Atkinson.  Likelihood ratios, posterior odds and information criteria , 1981 .

[6]  D. Hendry,et al.  An Automatic Test of Super Exogeneity , 2010 .

[7]  James G. MacKinnon,et al.  Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration , 1996 .

[8]  M. Pesaran,et al.  Long Run Macroeconomic Relations in the Global Economy , 2007, SSRN Electronic Journal.

[9]  David F. Hendry,et al.  Computer Automation of General-to-Specific Model Selection Procedures , 2001 .

[10]  H. Akaike,et al.  Information Theory and an Extension of the Maximum Likelihood Principle , 1973 .

[11]  G. Schwarz.  Estimating the Dimension of a Model , 1978 .

[12]  D. Hendry.  On the constancy of time-series econometric equations , 1996 .

[13]  Neil R. Ericsson,et al.  Conditional econometric modelling: an application to new house prices in the United Kingdom , 1985 .

[14]  Mark P. Taylor,et al.  What if the UK or Sweden had joined the Euro in 1999? An empirical evaluation using a global VAR , 2007 .

[15]  David F. Hendry,et al.  The Properties of Automatic Gets Modelling , 2004 .

[16]  K. Hoover,et al.  Truth and Robustness in Cross-Country Growth Regressions , 2000 .

[17]  Ron Smith,et al.  Macroeconometric Modelling with a Global Perspective , 2006, SSRN Electronic Journal.

[18]  Gordon de Brouwer,et al.  Modeling Inflation in Australia , 1998 .

[19]  David F. Hendry,et al.  Automatic selection of indicators in a fully saturated regression , 2008, Comput. Stat..

[20]  J. Doornik,et al.  Inference in Cointegrating Models: UK M1 Revisited , 1998 .

[21]  S. Dées,et al.  Stress-testing euro area corporate default probabilities using a global macroeconomic model☆ , 2010 .

[22]  R. Engle,et al.  Testing superexogeneity and invariance in regression models , 1993 .

[23]  David F. Hendry,et al.  On the Formulation of Empirical-models in Dynamic Econometrics , 1982 .

[24]  David F. Hendry,et al.  Chapter 16. New Developments in Automatic General-to-Specific Modeling , 2003 .

[25]  C. Granger.  Investigating causal relations by econometric models and cross-spectral methods , 1969 .

[26]  H. P. Boswijk,et al.  Efficient inference on cointegration parameters in structural error correction models , 1995 .

[27]  Neil R. Ericsson,et al.  The Demand for Broad Money in the United Kingdom, 1878-1993 , 1997 .

[28]  S. Johansen,et al.  Asymptotic Inference on Cointegrating Rank in Partial Systems , 1998 .

[29]  H. Akaike.  Likelihood of a model and information criteria , 1981 .

[30]  P. Perron,et al.  Estimating and testing linear models with multiple structural changes , 1995 .

[31]  D. Hendry.  The encompassing implications of feedback versus feedforward mechanisms in econometrics , 1988 .

[32]  Kevin D. Hoover,et al.  Data mining reconsidered: encompassing and the general-to-specific approach to specification search , 1997 .

[33]  D. Hendry.  Econometric methodology: a personal perspective , 2005 .

[34]  D. Andrews.  Tests for Parameter Instability and Structural Change with Unknown Change Point , 1993 .

[35]  Michio Hatanaka.  Time-series-based econometrics , 1996 .

[36]  Michael P. Clements,et al.  FORECASTING ECONOMIC TIME SERIES , 2000, Econometric Theory.

[37]  Neil R. Ericsson.  Conditional and structural error correction models , 1994 .

[38]  Katarina Juselius,et al.  The Cointegrated VAR Model: Methodology and Applications , 2006 .

[39]  Til Schuermann,et al.  Forecasting Economic and Financial Variables with Global VARs , 2007 .

[40]  David F. Hendry,et al.  Robustifying forecasts from equilibrium-correction systems , 2006 .

[41]  Jennifer L. Castle.  Automatic Econometric Model Selection using PcGets. , 2006 .

[42]  Michael P. Clements,et al.  Explaining Forecast Failure in Macroeconomics , 2007 .

[43]  Søren Johansen,et al.  Cointegration in partial systems and the efficiency of single-equation analysis , 1992 .

[44]  Neil R. Ericsson,et al.  PC-GIVE and David Hendry's econometric methodology , 1990 .

[45]  S. Johansen.  Likelihood-Based Inference in Cointegrated Vector Autoregressive Models , 1996 .

[46]  M. Pesaran,et al.  Infinite Dimensional VARs and Factor Models , 2009, SSRN Electronic Journal.

[47]  Jurgen A. Doornik,et al.  Encompassing and Automatic Model Selection , 2008 .

[48]  Bent Nielsen,et al.  An Analysis of the Indicator Saturation Estimator as a Robust Regression Estimator , 2008 .

[49]  M. Pesaran,et al.  Exploring the International Linkages of the Euro Area: A Global VAR Analysis , 2006, SSRN Electronic Journal.

[50]  K. Hoover,et al.  Improving on ‘ Data mining reconsidered ’ by , 2000 .

[51]  David F. Hendry,et al.  Explaining Cointegration Analysis: Part II , 2000 .

[52]  Aris Spanos,et al.  On Rereading Haavelmo: A Retrospective View of Econometric Modeling , 1989, Econometric Theory.

[53]  J. Stock,et al.  INFERENCE IN LINEAR TIME SERIES MODELS WITH SOME UNIT ROOTS , 1990 .

[54]  Michel Mouchart,et al.  Conditioning in dynamic models , 1985 .

[55]  Lars-Erik Öller.  Forecasting Non-stationary Economic Time Series: Michael P. Clements, and David F. Hendry, The MIT Press, Cambridge, Massachusetts, 1999, ISBN 0-262-03272-4, US $35 (Hardback) , 2001 .

[56]  B. G. Quinn,et al.  The determination of the order of an autoregression , 1979 .

[57]  K. Juselius.  Domestic and foreign effects on prices in an open economy: The case of Denmark , 1992 .

[58]  M. Pesaran,et al.  Modeling Regional Interdependencies Using a Global Error-correcting Macroeconometric Model Federal Reserve Bank of New York , 2001 .

[59]  J. Florens,et al.  Initial and Sequential Reduction of Bayesian Experiments , 1980 .