Structural time series: computational efficiency in estimating economic parameters in industry

10 January 2022, Version 1

Abstract

A growing field is related to automatized Time Series analysis, through complicated due to the dependence of observed and hidden dimensions often presented in these data types. In this report the problem is motivated by a Brazilian financial company interested in unraveling relation structure explanation of the Japanese' CPI ex-fresh Food \& Energy across 157 economical exogenous variables, with very limiting data. The problem becomes more complex when considering that each variable can enter the model with lags of 0 to 8 periods, as well as an additional restriction of admitting only a positive relationship. This report discusses three possible treatments involving models for structured time series, the most relevant approach found in this study is a Dynamic Regression Model combined with a Stepwise algorithm, which allows the most relevant variables, as well as their respective lags, to be found and inserted in the model with low computational cost.

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