Our proposed local vector autoregressive (LVAR) model has time-varying parameters that allow it to be safely used in both stationary and non-stationary situations. The estimation is conducted over an interval of local homogeneity where the parameters are approximately constant. The local interval is identified in a sequential testing procedure. Numerical analysis and real data application are conducted to illustrate the monitoring function and forecast performance of the proposed model.
JEL-Codes: C32, C53, E43, E47
Keywords: Adaptive estimation; Multivariate time series; Non-stationarity; Yield curve
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