Small-sample properties of dimensionality statistics for fitting VAR models to aggregate economic data: A Monte Carlo study

Abstract The analysis of aggregate economic phenomena by VAR's as suggested by Sims often results in a small sample relative to the number of estimated parameters. Since the model is identified by a dimensionality criterion, the small-sample properties of available criteria are important. This paper presents a study of small-sample properties for six criteria with Monte Carlo methods. It is found that no criterion performs well, and that underfitting of models may be quite common.

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

[2]  R. Shibata.  Selection of the order of an autoregressive model by Akaike's information criterion , 1976 .

[3]  M. Stone.  Comments on Model Selection Criteria of Akaike and Schwarz , 1979 .

[4]  R. Lucas.  Econometric policy evaluation: A critique , 1976 .

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

[6]  R. Gordon,et al.  The Output Cost of Disinflation in Traditional and Vector Autoregressive Models , 1982 .

[7]  Takamitsu Sawa,et al.  Information criteria for discriminating among alternative regression models / BEBR No. 455 , 1978 .

[8]  Robert B. Litterman,et al.  Money, Real Interest Rates, and Output: A Reinterpretation of Postwar U.S. Data , 1985 .

[9]  Cheng Hsiao,et al.  Autoregressive Modeling of Canadian Money and Income Data , 1979 .

[10]  H. Akaike.  A new look at the statistical model identification , 1974 .

[11]  R. Bhansali,et al.  Some properties of the order of an autoregressive model selected by a generalization of Akaike∘s EPF criterion , 1977 .

[12]  H. Theil,et al.  Economic Forecasts and Policy. , 1959 .

[13]  H. Akaike.  A Bayesian extension of the minimum AIC procedure of autoregressive model fitting , 1979 .

[14]  John Geweke,et al.  Estimating regression models of finite but unknown order , 1981 .

[15]  S. Fischer.  Relative Shocks, Relative Price Variability, and Inflation , 1981 .

[16]  C. Sims.  MACROECONOMICS AND REALITY , 1977 .

[17]  Takeshi Amemiya,et al.  Selection of Regressors , 1980 .