Studying Co-Movements in Large Multivariate Data Prior to Multivariate Modelling

26 Pages Posted: 26 May 2008 Last revised: 25 Feb 2014

See all articles by Gianluca Cubadda

Gianluca Cubadda

University of Rome Tor Vergata - Department of Economics and Finance

Alain Hecq

Maastricht University - Department of Economics

Franz C. Palm

University of Maastricht - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Abstract

For non-stationary vector autoregressive models (VAR hereafter, or VAR with moving average, VARMA hereafter), we show that the presence of common cyclical features or cointegration leads to a reduction of the order of the implied univariate autoregressive-moving average (ARIMA hereafter) models. This finding can explain why we identify parsimonious univariate ARIMA models in applied research although VAR models of typical order and dimension used in macroeconometrics imply non-parsimonious univariate ARIMA representations. Next, we develop a strategy for studying interactions between variables prior to possibly modelling them in a multivariate setting. Indeed, the similarity of the autoregressive roots will be informative about the presence of co-movements in a set of multiple time series. Our results justify both the use of a panel setup with homogeneous autoregression and heterogeneous cross-correlated vector moving average errors and a factor structure, and the use of cross-sectional aggregates of ARIMA series to estimate the homogeneous autoregression.

Keywords: Interactions, multiple time series, co-movements, ARIMA, cointegration, common cycles

JEL Classification: C32

Suggested Citation

Cubadda, Gianluca and Hecq, Alain and Palm, Franz C., Studying Co-Movements in Large Multivariate Data Prior to Multivariate Modelling. CEIS Working Paper No. 125, Available at SSRN: https://ssrn.com/abstract=1136792 or http://dx.doi.org/10.2139/ssrn.1136792

Gianluca Cubadda

University of Rome Tor Vergata - Department of Economics and Finance ( email )

Via Columbia n.2
Roma, 00133
Italy

Alain Hecq

Maastricht University - Department of Economics

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Franz C. Palm (Contact Author)

University of Maastricht - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31-(0)43-3883833 (Phone)
+31-(0)43-3258535 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

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