Modeling Strategies for Large Dimensional Vector Autoregressions
- Modeling Strategies for Large Dimensional Vector Autoregressions
- Zang, Pengfei
- Thesis Advisor(s):
- Davis, Richard A.
- Ph.D., Columbia University
- Persistent URL:
- The vector autoregressive (VAR) model has been widely used for describing the dynamic behavior of multivariate time series. However, fitting standard VAR models to large dimensional time series is challenging primarily due to the large number of parameters involved. In this thesis, we propose two strategies for fitting large dimensional VAR models. The first strategy involves reducing the number of non-zero entries in the autoregressive (AR) coefficient matrices and the second is a method to reduce the effective dimension of the white noise covariance matrix. We propose a 2-stage approach for fitting large dimensional VAR models where many of the AR coefficients are zero. The first stage provides initial selection of non-zero AR coefficients by taking advantage of the properties of partial spectral coherence (PSC) in conjunction with BIC. The second stage, based on $t$-ratios and BIC, further refines the spurious non-zero AR coefficients post first stage. Our simulation study suggests that the 2-stage approach outperforms Lasso-type methods in discovering sparsity patterns in AR coefficient matrices of VAR models. The performance of our 2-stage approach is also illustrated with three real data examples. Our second strategy for reducing the complexity of a large dimensional VAR model is based on a reduced-rank estimator for the white noise covariance matrix. We first derive the reduced-rank covariance estimator under the setting of independent observations and give the analytical form of its maximum likelihood estimate. Then we describe how to integrate the proposed reduced-rank estimator into the fitting of large dimensional VAR models, where we consider two scenarios that require different model fitting procedures. In the VAR modeling context, our reduced-rank covariance estimator not only provides interpretable descriptions of the dependence structure of VAR processes but also leads to improvement in model-fitting and forecasting over unrestricted covariance estimators. Two real data examples are presented to illustrate these fitting procedures.
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- Suggested Citation:
- Pengfei Zang, 2012, Modeling Strategies for Large Dimensional Vector Autoregressions, Columbia University Academic Commons, https://doi.org/10.7916/D8JW8N0V.