Statistica Sinica 27 (2017), 23-42

THE CEPSTRAL MODEL FOR MULTIVARIATE TIME

SERIES: THE VECTOR EXPONENTIAL MODEL

Scott H. Holan, Tucker S. McElroy and Guohui Wu

University of Missouri, U.S. Census Bureau and SAS Institute Inc.

Abstract: Vector autoregressive models have become a staple in the analysis of multivariate time series and are formulated in the time domain as difference equations, with an implied covariance structure. In many contexts, it is desirable to work with a stable, or at least stationary, representation. To fit such models, one must impose restrictions on the coefficient matrices to ensure that certain determinants are nonzero which, except in special cases, can prove burdensome. To circumvent these difficulties, we propose a flexible frequency domain model expressed in terms of the spectral density matrix. Specifically, this paper treats the modeling of covariance stationary vector-valued time series via an extension of the exponential model for the spectrum of a scalar time series. We discuss the modeling advantages of the vector exponential model and its computational facets, such as how to obtain moving average coefficients from given cepstral coefficients. We demonstrate the utility of our approach through simulation as well as two illustrative data examples focusing on multi-step ahead forecasting and estimation of squared coherence.

Key words and phrases: Autocovariance matrix, Bayesian estimation, cepstral, coherence, moving average coefficients, spectral density matrix, stochastic search variable selection.