Constructing Structural VAR Models with Conditional Independence Graphs

Abstract

In this paper graphical modelling is used to select a sparse structure for a multivariate time series model of New Zealand interest rates. In particular, we consider a recursive structural vector autoregressions that can subsequently be described parsimoniously by a directed acyclic graph, which could be given a causal interpretation. A comparison between competing models is then made by considering likelihood and economic theory.Graphical models; directed acyclic graphs; term structure; causality.