An Application of Vector Time Series Techniques to Macroeconomic Forecasting

Abstract

A wide variety of time series techniques are now used for generating forecasts of economic variables, with each technique attempting to summarize and exploit whatever regularities exist in a given data set. It appears that many researchers arbitrarily choose one of these techniques. The purpose of this article is to provide an example for which the choice of time series technique appears important; merely choosing arbitrarily among available techniques may lead to suboptimal results.

KEY WORDS:

• Multivariate autoregressive moving average model
• Vector autoregression
• Forecasting multivariate time series