Research Discussion Papers, Bank of Finland
No 18/2009:
Noncausal vector autoregression
Markku Lanne ()
and Pentti Saikkonen ()
Abstract: In this paper, we propose a new noncausal vector
autoregressive (VAR) model for non-Gaussian time series. The assumption of
non-Gaussianity is needed for reasons of identifiability. Assuming that the
error distribution belongs to a fairly general class of elliptical
distributions, we develop an asymptotic theory of maximum likelihood
estimation and statistical inference. We argue that allowing for
noncausality is of importance in empirical economic research, which
currently uses only conventional causal VAR models. Indeed, if noncausality
is incorrectly ignored, the use of a causal VAR model may yield suboptimal
forecasts and misleading economic interpretations. This is emphasized in
the paper by noting that noncausality is closely related to the notion of
nonfundamentalness, under which structural economic shocks cannot be
recovered from an estimated causal VAR model. As detecting
nonfundamentalness is therefore of great importance, we propose a procedure
for discriminating between causality and noncausality that can be seen as a
test of nonfundamentalness. The methods are illustrated with applications
to fiscal foresight and the term structure of interest rates.
Keywords: elliptic distribution; fiscal foresight; maximum likelihood estimation; noncausal; nonfundamentalness; non-Gaussian; term structure of interest rates; (follow links to similar papers)
JEL-Codes: C32; C46; C52; E62; G12; (follow links to similar papers)
63 pages, August 12, 2009
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
0918netti.pdf 
Download Statistics
Questions (including download problems) about the papers in this series should be directed to Minna Nyman ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design by Joachim Ekebom
