VARMA versus VAR for Macroeconomic Forecasting
Journal of Business and Economic Statistics (2008), 26 (2), pp. 237-252.George Athanasopoulos1 and Farshid Vahid2
1Department of Econometrics and Business Statistics, Monash University, VIC 3800, Australia. 2School of Economics, Australian National University, ACT 0200, Australia.
Abstract
In this paper, we argue that there is no compelling reason for restricting the class of multivariate models considered for macroeconomic forecasting to VARs, given the recent advances in VARMA modelling methodology and improvements in computing power. To support this claim, we use real macroeconomic data, and show that VARMA models forecast macroeconomic variables more accurately than VAR models.
Keywords: Identification, Multivariate time series, Scalar components, VARMA models.