Professional Documents
Culture Documents
Asad Dossani
1 / 28
Multivariate Time Series Models
2 / 28
Stationarity and Autocorrelation Matrices
yt = (yt1 , . . . , ytd )0
µ ≡ E(yt )
Γ(k) ≡ E[(yt+k − µ)(yt − µ)0 ]
3 / 28
Cross Covariance Function
4 / 28
Cross Correlation Matrix
5 / 28
Cross Correlation Matrix
6 / 28
Sample Cross Covariance/Correlation Matrices
T −k
(yt+k − µ̂)(yt − µ̂)0
1 X
Γ̂(k) =
T
t=1
T
µ̂ =
1 X
T
yt
t=1
7 / 28
Sample Cross Covariance/Correlation Matrices
8 / 28
Vector White Noise
A vector noise process has no serial correlation across all the compo-
nents of ut . However, different components of ut may be contem-
poraneously correlated, as Σu is not necessarily a diagonal matrix.
ut ∼ WN(a, Σu )
E(ut ) = a
Var(ut ) = Σu
Cov(ut , us ) = 0 for all t 6= s
9 / 28
Vector Autoregressive Models: VAR(1)
yt ∼ VAR(1)
yt = c + Byt−1 + ut
ut ∼ WN(0, Σu )
10 / 28
Bivariate VAR(1)
yt = c + Byt−1 + ut
y1,t c1 B11 B12 y1,t−1 u
= + + 1,t
y2,t c2 B21 B22 y2,t−1 u2,t
y1,t = c1 + B11 y1,t−1 + B12 y2,t−1 + u1,t
y2,t = c2 + B21 y1,t−1 + B22 y2,t−1 + u2,t
If B12 = 0 and B21 = 0, then both y1,t and y2,t are AR(1) processes.
11 / 28
Expected Value of yt
12 / 28
Bivariate VAR(1)
yt = c + Ayt−1 + ut
ut ∼ WN(0, Σu )
c = 0.1
0.2
A = 0.5
0
0.25
0.5
13 / 28
Bivariate VAR(1)
E(yt ) = (I − A)−1 c
!−1
1 0 0.5 0.25 0.1
= −
0 1 0 0.5 0.2
!−1
0.5 −0.25 0.1
=
0 0.5 0.2
!
1 0.5 0.25 0.1
=
(0.5)(0.5) − (−0.25)(0) 0 0.5 0.2
!
2 1 0.1
=
0 2 0.2
0.4
=
0.4
14 / 28
Vector Autoregressive Models: VAR(p)
yt ∼ VAR(p)
yt = c + B1 yt−1 + · · · + Bp yt−p + ut
ut ∼ WN(0, Σu )
E(yt ) = (I − B1 − · · · − Bp )−1 c
15 / 28
Forecasting using a VAR(1)
16 / 28
Forecasting using a VAR(1)
j=1
k−1
Et (yt+k ) = c + Bj c
X
as k → ∞
j=1
Et (yt+k ) = (I − B )−1 c as k → ∞
17 / 28
Forecasting using a VAR(1)
yt = c + Ayt−1 + ut
ut ∼ WN(0, Σu )
c = 0.1
0.2
A = 0 0.5
0.5 0.25
Suppose yt = (1, 0)0 . Compute the one period ahead and two period
ahead forecasts, i.e. Et (yt+1 ) and Et (yt+2 ).
18 / 28
Forecasting using a VAR(1)
Et (yt+1 ) = c + Ayt
0.1 0.5 0.25 1 0.6
= + =
0.2 0 0.5 0 0.2
Et (yt+2 ) = c + AEt (yt+1 )
0.1 0.5 0.25 0.6 0.45
= + =
0.2 0 0.5 0.2 0.3
19 / 28
Information Criteria
2k 0
MAIC = log(|Σ̂u |) +
T
k0
MBIC = log(|Σ̂u |) + ln T
T
2k 0
MHQIC = log(|Σ̂u |) + ln(ln T )
T
20 / 28
Granger Causality
Time series y1,t is said to Granger cause time series y2,t if lags of
y1,t are useful for forecasting y2,t , after controlling for lags of y2,t .
21 / 28
Granger Causality
yt = c + Byt−1 + ut
y1,t = c1 + B11 y1,t−1 + B12 y2,t−1 + u1,t
y2,t = c2 + B21 y1,t−1 + B22 y2,t−1 + u2,t
22 / 28
Granger Causality
yt = c + B1 yt−1 + · · · + Bp yt−p + ut
Testing for Granger causality is a test of the following restriction:
23 / 28
Granger Causality
(RSSr − RSS)/p
F = ∼ F (p, 2T − 4p − 2)
RSS/(2T − 4p − 2)
If the test statistic is greater than the critical value, we reject the
null hypothesis of no Granger causality.
24 / 28
Impulse Response Functions
k=1
25 / 28
Impulse Response Functions
26 / 28
Impulse Response Functions
ut = Ψ0 t
Ψ0 Ψ00 = Σu
Var(t ) = I
∞
yt = c + Ψ0 t +
X
Ψk t−k
k=1
27 / 28
Impulse Response Functions
28 / 28