24/11/2015

Question5.11|EstimatingVARs|MFxCourseware|edX

IMFx: MFx Macroeconomic Forecasting

Getting Started

Entry Survey
and Pre-Course
Quiz

Course
Introduction
Module 1:
EViews Basics
(Optional)

QUESTION 5.11 (1/1 point)

Have open the "Module 5 Part 1 VAR workfile" and go to the Canada
pagefile (i.e., CAN)
Lets pretend we dont have any information on the number of lags and reestimate our VAR (lets call it now canada2), using the same endogenous
variables lgdp_gap, rer_gap, infl and mpr, but using just 1 lag.
Examine the correlogram of the residuals in the canada2 VAR and
compare it with the correlogram of the residuals in the canada VAR
(estimated with 2 lags).
What do you notice (select all that apply)?
Hint: From the VAR main menu, select View Residual Tests
Correlograms.

Module 2:
Introduction to
EViews

Module 3A:
Statistical
Properties of
Time Series
Data

suggest short-term correlation in the canada2 VAR, which does not

Module 3B:
Statistical
Properties of
Time Series
Data

On the basis of this comparison, one would conclude that a lag

Module 4:

Forecast
Uncertainty &
Model
Evaluation

Some fairly large values of some first order autocorrelations

seem to be present in the canada VAR.

There is no obvious cause of concern in either of the two VARs.

setting of two(2) is the best choice.

EXPLANATION

The correlogram from the canada2 VAR can be seen below. It has
some significantly high first order autocorrelations suggesting some
short-term correlation.

Introduction
Questions due Nov 25,
2015 at 23:30 UTC

Sources of
Uncertainty
Questions due Nov 25,
2015 at 23:30 UTC

https://courses.edx.org/courses/coursev1:IMFx+MFx+2015T3/courseware/c7a914d5671e453eace54746594f5d63/af626a308c1745b79e785578a8d2bb6c/

1/5

24/11/2015

Question5.11|EstimatingVARs|MFxCourseware|edX

Statistics for
Forecast
Assessment
Questions due Nov 25,
2015 at 23:30 UTC

Theils U Statistics
Questions due Nov 25,
2015 at 23:30 UTC

Introduction to
Forecasting
Strategies
Questions due Nov 25,
2015 at 23:30 UTC

Introduction to
Structural Breaks
Questions due Nov 25,
2015 at 23:30 UTC

Fan Charts
Questions due Nov 25,
2015 at 23:30 UTC

Module 5:
Vector
Autoregressions
(VARs)

The correlogram from the canada VAR can be seen below. It no longer
displays the same problem with large first order autocorrelations,
suggesting that adding one lag took care of the issue. Two lags seems
to be the better choice.

You have used 3 of 3 submissions

QUESTION 5.12 (1/1 point)

https://courses.edx.org/courses/coursev1:IMFx+MFx+2015T3/courseware/c7a914d5671e453eace54746594f5d63/af626a308c1745b79e785578a8d2bb6c/

2/5

24/11/2015

Question5.11|EstimatingVARs|MFxCourseware|edX

To formally test for autocorrelation in the residuals, run an

autocorrelation LM test for the Canada VAR for the 1994q1 to 2012q4
period, including up to 8 lags.
The test concludes that (select all that apply):
Hint: From the VAR main menu, select View Residual Tests
Autocorrelation LM test.
The null cannot be rejected for any lag lengths, and thus there is
no serial correlation.
The null hypothesis of no serial correlation can be rejected for 1
lag at the 5% level.

The null hypothesis of no serial correlation cannot be rejected for

2 lags at the 5% level.

The null cannot be rejected for any lag lengths, and thus there is
serial correlation.

EXPLANATION

The output from the LM test can be seen below.

https://courses.edx.org/courses/coursev1:IMFx+MFx+2015T3/courseware/c7a914d5671e453eace54746594f5d63/af626a308c1745b79e785578a8d2bb6c/

3/5

24/11/2015

Question5.11|EstimatingVARs|MFxCourseware|edX

The LM test suggests that we can reject the null hypothesis of no

autocorrelation for 1 lag (using a 5% level of significance), suggesting
that one should try at least 2 lags. That said, the LM test using 2 and 3
lags cannot reject the null of no autocorrelation, suggesting that 2 lags
should be adequate (we ignore the significant autocorrelation at lag 4,
which may reflect some minor seasonality in the data). We will
continue using 2 lags in our specification of the Canada VAR.

You have used 1 of 3 submissions

All Rights Reserved

edX Inc. All rights reserved except where noted. EdX, Open edX and the edX and Open EdX logos are
registered trademarks or trademarks of edX Inc.

https://courses.edx.org/courses/coursev1:IMFx+MFx+2015T3/courseware/c7a914d5671e453eace54746594f5d63/af626a308c1745b79e785578a8d2bb6c/

4/5