ANALYSIS OF VECTOR AUTOREGRESSIONS IN THE PRESENCE OF SHIFTS IN MEAN

Serena Ng · Timothy J. Vogelsang

31 citations0/0 files storedEconometric Reviews

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Monetary Policy and Economic Impact Advanced Statistical Methods and Models Statistical and numerical algorithms

Abstract

This paper considers the implications of mean shifts in a multivariate setting. It is shown that under the additive outlier type mean shift specification, the intercept in each equation of the vector autoregression (VAR) will be subject to multiple shifts when the break dates of the mean shifts to the univariate series do not coincide. Conversely, under the innovative outlier type mean shift specification, both the univariate and the multivariate time series are subject to multiple shifts when mean shifts to the innovation processes occur at different dates. We consider two procedures, the first removes the shifts series by series before forming the VAR, and the second removes intercept shifts in the VAR directly. The pros and cons of both methods are discussed.

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References

1989The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis 1993Tests for Parameter Instability and Structural Change With Unknown Change Point 1990Inference in Linear Time Series Models with some Unit Roots 1996Residual-based tests for cointegration in models with regime shifts 1989New Indexes of Coincident and Leading Economic Indicators 1990Testing for a Unit Root in a Time Series With a Changing Mean 1990Recursive and Sequential Tests of the Unit Root and Trend Break Hypothesis: Theory and International Evidence 1992Recursive and Sequential Tests of the Unit-Root and Trend-Break Hypotheses: Theory and International Evidence

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