Nonlinear Fore(Back)casting and Innovation Filtering for Causal-Noncausal VAR Models (2205.09922v3)

Abstract: We introduce closed-form formulas of out-of-sample predictive densities for forecasting and backcasting of mixed causal-noncausal (Structural) Vector Autoregressive VAR models. These nonlinear and time irreversible non-Gaussian VAR processes are shown to satisfy the Markov property in both calendar and reverse time. A post-estimation inference method for assessing the forecast interval uncertainty due to the preliminary estimation step is introduced too. The nonlinear past-dependent innovations of a mixed causal-noncausal VAR model are defined and their filtering and identification methods are discussed. Our approach is illustrated by a simulation study, and an application to cryptocurrency prices.