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Cointegrated VARMA Models and Forecasting US Interest Rates


Kascha, Christian; Trenkler, Carsten (2011). Cointegrated VARMA Models and Forecasting US Interest Rates. Working paper series / Department of Economics No. 33, University of Zurich.

Abstract

We bring together some recent advances in the literature on vector autoregressive moving-average models creating a relatively simple specification and estimation strategy for the cointegrated case. We show that in the cointegrated case with fixed initial values there exists a so-called final moving representation which is usually simpler but not as parsimonious than the usual Echelon form. Furthermore, we proof that our specification strategy is consistent also in the case of cointegrated series. In order to show the potential usefulness of the method, we apply it to US interest rates and find that it generates forecasts superior to methods which do not allow for moving-average terms.

Abstract

We bring together some recent advances in the literature on vector autoregressive moving-average models creating a relatively simple specification and estimation strategy for the cointegrated case. We show that in the cointegrated case with fixed initial values there exists a so-called final moving representation which is usually simpler but not as parsimonious than the usual Echelon form. Furthermore, we proof that our specification strategy is consistent also in the case of cointegrated series. In order to show the potential usefulness of the method, we apply it to US interest rates and find that it generates forecasts superior to methods which do not allow for moving-average terms.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:C32, C53, E43, E47
Language:English
Date:October 2011
Deposited On:25 Nov 2011 10:13
Last Modified:12 Aug 2017 12:32
Series Name:Working paper series / Department of Economics
ISSN:1664-7041
Official URL:http://www.econ.uzh.ch/wp.html

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