Beruflich Dokumente
Kultur Dokumente
TOPIC 7:
VECTOR
AUTOREGRESSIVE
MODELS AND ITS
APPLICATION
By:
Assoc. Prof. Dr. Sallahuddin Hassan
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Applied Econometrics
INTRODUCTION
2
INTRODUCTION
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INTRODUCTION
4
FEATURES OF A VAR
MODEL
VAR MODEL
6
VAR MODEL
7
y
t
x
t
xt 20 21 yt 1 22 xt 1
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VAR MODEL
8
xt 20 21 yt 1 22 xt 1
x
t
I 0
VAR MODEL
9
VECM MODEL
10
VECM MODEL
11
Why we do this?
VECM MODEL
12
Model:
Yt 1 11 Yt 1 0 1 X t 1 v1t
X t 2 21 Yt 1 0 1 X t 1 v 2t
VECM MODEL
13
Yt 1 ECTt 1 X t t
is the impact multiplier (the short-run
effect) that measures the immediate
impact that
X t a current change in Yt will have
on a change in .
SPECIFICATION ISSUES
14
Logs or no logs?
How many variables?
SPECIFICATION ISSUES
15
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SPECIFICATION ISSUES
16
17
SPECIFICATION OF VAR
MODEL
1) Testing for stationarity
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SPECIFICATION OF VAR
MODEL
H0: Unit root/non stationary.
H1: Stationary.
(
Reject H0 if the ADF statistics
C value ( )
)< the critical
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SPECIFICATION OF VAR
MODEL
2) Testing for cointegration
21
SPECIFICATION OF VAR
MODEL
Step 1:Testing the order of integration
of the variables.
Step 2: Setting the appropriate lag
length of the model
22
SPECIFICATION OF VAR
MODEL
VAR Estimation
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Normality Test
23
Normality Test
24
3
2
S
25
SPECIFICATION OF VAR
MODEL
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SPECIFICATION OF VAR
MODEL
Inform ation Criteria by Rank and Model
Data Trend:
Rank or
No. of CEs
None
No Intercept
No Trend
None
Intercept
No Trend
Linear
Intercept
No Trend
Linear
Intercept
Trend
0
1
2
3
Log Likelihood
-2412.003
-2400.054
-2393.478
-2392.300
0
1
2
3
0
1
2
3
(colum ns )
122.3648
122.4724
122.7855
123.3436
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Quadratic
Intercept
Trend
-2400.869
-2391.895
-2389.677
-2389.406
122.2568
122.3614
122.8039
123.3436
27
SPECIFICATION OF VAR
MODEL
of
Step 4: Determining the rank
or
the number of cointegrating vector.
Using two tests:
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SPECIFICATION OF VAR
MODEL
trace r T ln 1
r 1
i r 1
If
29
SPECIFICATION OF VAR
MODEL
Unres tricted Cointegration Rank Tes t (Trace)
Hypothes ized
No. of CE(s )
None *
At m os t 1 *
At m os t 2
Eigenvalue
Trace
Statis tic
0.05
Critical Value
Prob.**
0.449779
0.280235
0.057191
39.40629
15.50888
2.355655
24.27596
12.32090
4.129906
0.0003
0.0141
0.1474
Eigenvalue
Max-Eigen
Statis tic
0.05
Critical Value
Prob.**
0.449779
0.280235
0.057191
23.89741
13.15323
2.355655
17.79730
11.22480
4.129906
0.0053
0.0226
0.1474
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SPECIFICATION OF VAR
MODEL
Both the trace and the maximal
eigenvalue statistics suggest the
existence of two cointegrating
vectors.
Eviews then reports results regarding
the coefficients of the speed of
adjustment coefficients
( ) and the
matrix of the long-run
coefficients
( ).
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SPECIFICATION OF VAR
MODEL
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VECM MODEL
ESTIMATION
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33
VECM MODEL
ESTIMATION
Cointegrating Eq:
CointEq1
REXP_M(-1)
1.000000
RFDI_M(-1)
-10.52989
(10.3874)
[-1.01372]
RGDP_M(-1)
-0.019252
(0.00352)
[-5.47628]
Error Correction:
D(REXP_M)
D(RFDI_M)
D(RGDP_M)
CointEq1
-0.039037
(0.01669)
[-2.33941]
-0.011229
(0.00529)
[-2.12306]
-4.457555
(0.95264)
[-4.67917]
D(REXP_M(-1))
0.457965
(0.18590)
[ 2.46349]
-0.026410
(0.05892)
[-0.44823]
7.924660
(10.6129)
[ 0.74670]
D(RFDI_M(-1))
-0.831488
(0.63688)
[-1.30557]
-0.043661
(0.20186)
[-0.21629]
-3.312521
(36.3589)
[-0.09111]
D(RGDP_M(-1))
-0.005673
(0.00410)
[-1.38363]
-0.002730
(0.00130)
[-2.10112]
-0.242330
(0.23406)
[-1.03532]
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