Advances and Applications in Statistics
Volume 7, Issue 3, Pages 313 - 340
(December 2007)
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RESTRICTED VAR FORECASTS OF ECONOMIC TIME SERIES WITH CONTEMPORANEOUS CONSTRAINTS
Nicolas Gomez (M鸩co) and Victor M. Guerrero (M鸩co)
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Abstract: This paper presents a methodology to incorporate linear constraints into the forecasts of a multivariate time series when some components of the series are also subjected to contemporaneous constraints. This methodology has natural applications when forecasting macroeconomic and financial time series that must satisfy accounting constraints, which are binding. Besides, the methodology has immediate implications on the forecasts of cointegrated systems because the cointegration relationship can be viewed as a stochastic contemporaneous constraint. An illustrative empirical application considers the balance of payments situation where deficit (income minus expenditure) is the variable of interest. A Monte Carlo study is also presented to illustrate the use of the methodology to improve the forecasting performance of a vector time series model when there is a cointegration relationship. |
Keywords and phrases: multiple time series, cointegration, countable restrictions, precision measures. |
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