A Copula-VAR-X Approach for Industrial Production Modelling and Forecasting
Applied Economics, Forthcoming
18 Pages Posted: 8 Apr 2008 Last revised: 23 Dec 2011
Date Written: April 1, 2008
World economies, and especially European ones, have become strongly interconnected in the last decades and a joint modelling is required. We propose here the use of Copulas to build flexible multivariate distributions, since they allow for a rich dependence structure and more flexible marginal distributions that better fit the features of empirical data, such as leptokurtosis. We use our approach to forecast industrial production series in the core EMU countries and we provide evidence that the copula-VAR model outperforms or at worst compares similarly to normal VAR models, keeping the same computational tractability of the latter approach.
Keywords: Forecasting, Industrial Production, Copula, VAR models, Vector Auto Regression
JEL Classification: C13, C32, C51, C53
Suggested Citation: Suggested Citation