A multivariate innovations state space Beveridge-Nelson decomposition

Ashton de Silva, Rob J Hyndman, Ralph D Snyder
(2009) Economic modelling 26(5), 1067-1074

DOI

The Beveridge-Nelson vector innovations structural time series framework is a new formulation that decomposes a set of variables into their permanent and transitory components. The proposed framework is flexible, modelling inter-series relationships and common features in a simple manner. In particular, it is shown that this new specification is simpler than conventional state space and cointegration approaches. The approach is illustrated using a trivariate data set comprising the GDP of Australia, the USA and the UK.

Keywords: vector innovations structural time series model, multivariate time series model, Beveridge-Nelson decomposition, common components.