THE CENTER FOR ECONOMICS JOB MARKET SEMINAR ANNIKA SCHNÜCKER
Annika Schnücker, Free University Berlin and DIW Berlin Graduate Center
2018-02-06 at 10:15
2018-02-06 at 11:45
Economics conference room 730, SSE, Bertil Ohlins Gata 4, 7th fl.
Job Market Paper:“ Penalized Estimation of Panel Vector Autoregressive Models: A Lasso Approach”
Abstract: This paper proposes a new lasso (least absolute shrinkage and selection operator) for estimating panel vector autoregressive (PVAR) models. By allowing for interdependencies and heterogeneities across cross-sectional units, typically the number of parameters of PVAR models is too large to estimate using ordinary least squares. The penalized regression this paper introduces ensures the feasibility of the estimation by specifying a shrinkage penalty that contains time series and cross section characteristics. It thereby accounts for the inherent panel structure within the data. Furthermore, using the weighted sum of squared residuals as the loss function enables the lasso for PVAR models to take into account correlations between cross-sectional units in the penalized regression. The specification of the penalty term allows to establish the asymptotic oracle properties. Given large and sparse models, simulation results point towards advantages of using lasso for PVARs over OLS, standard lasso techniques as well as Bayesian estimators in terms of mean squared errors and forecast accuracy. Empirical forecasting applications with up to ten countries and four variables support these findings.
The paper can be downloaded here
To find out more about Annika Schücker, visit her website