| Abstract: |
An important aspect of empirical research based on the vector autoregressive
(VAR) model is the choice of the lag order, since all inference in the VAR
model depends on the correct model specification. Literature has shown
important studies of how to select the lag order of a nonstationary VAR model
subject to cointegration restrictions. In this work, we consider an additional
weak form (WF) restriction of common cyclical features in the model in order
to analyze the appropriate way to select the correct lag order. Two
methodologies have been used: the traditional information criteria (AIC, HQ
and SC) and an alternative criterion (IC(p,s)) which select simultaneously the
lag order p and the rank structure s due to the WF restriction. A Monte-Carlo
simulation is used in the analysis. The results indicate that the cost of
ignoring additional WF restrictions in vector autoregressive modeling can be
high, especially when SC criterion is used. |