VARMA versus VAR for Macroeconomic Forecasting

George A. Athanasopoulos · Farshid Vahid

99 citations0/0 files storedJournal of Business and Economic Statistics

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Forecasting Techniques and Applications Monetary Policy and Economic Impact Time Series Analysis and Forecasting

Abstract

In this article, we argue that there is no compelling reason for restricting the class of multivariate models considered for macroeconomic forecasting to vector autoregressive (VAR) models, given the recent advances in vector autoregressive moving average (VARMA) modeling methodology and improvements in computing power. To support this claim, we use real macroeconomic data, and show that VARMA models forecast macroeconomic variables more accurately than VARs.

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