Temporal aggregation in structural VAR models
The authors examine the effect of temporal aggregation on the estimated time series properties of data. They investigate the effect of temporal aggregation on the time series characteristics of actual economic data. They assume that the dynamic interrelationship between the rate of growth of the real monetary aggregate \(M\), the industrial production index \(Y\) and the 3-month treasure bills rate can be adequately represented by a finite order autoregressive process \(A(L)X_{t}=u_{t}\), where \(A(L)=I-A_1L-\ldots-A_{p}L^{p}\), \(u_{t}=N(0,\Sigma)\), and \(X'=[\Delta M,\Delta Y,\Delta l].\) The authors consider estimates of the parameters by using full information maximum likelihood techniques. The analysis shows that there are significant effects on the estimated properties of the data and the forecasting accuracy with major implications for interpreting the time series properties of the aggregates. For many economic time series temporal aggregation leads to a substantial loss of information about the data generating process. The authors show that the major implication for economic analysis is that the observed time series behaviour of temporally aggregated data is not a reliable guide to the true cyclical properties of the underlying economy.
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