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Optimal Lag Structure Selection in VEC-Models

In: New Directions in Macromodelling

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  • Peter Winker
  • Dietmar Maringer

Abstract

For modelling economic and financial time series, multivariate linear and nonlinear systems of equations have become a standard tool. These models can also be applied to non-stationary processes. However, the resulting finite-sample estimates may depend strongly on the specification of the model dynamics. We propose a method for automatic identification of the dynamic part of VEC-models. Model selection is based on a modified information criterion. The lag structure of the model is selected according to this objective function allowing for "holes". The resulting complex discrete optimization problem is tackled using a hybrid heuristic combining ideas from threshold accepting and memetic algorithms. We present the algorithm and the results of a simulation study showing the method's performance both with regard to the dynamic structure and the rank selection in the VEC-model. The results indicate that the selection of the cointregation rank might depend strongly on the specification of the dynamic part of the VEC-model
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  • Peter Winker & Dietmar Maringer, 2004. "Optimal Lag Structure Selection in VEC-Models," Contributions to Economic Analysis, in: New Directions in Macromodelling, pages 213-234, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:ceazzz:s0573-8555(04)69009-2
    DOI: 10.1016/S0573-8555(04)69009-2
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    8. Mezgebo, Taddese, 2009. "A multivariate approach for identification of optimal locations with in Ethiopia’s wheat market to tackle soaring inflation on food price," MPRA Paper 18663, University Library of Munich, Germany.
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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