The lag length in a VAR using the BIC proceeds as follows: Among a set of candidate values of p, the estimated lag length _xxxis the value of p A)For which the BIC exceeds the AIC B)That maximizes BIC(p) C)Cannot be determined here since a VAR is a system of equations, not a single one D)That minimizes BIC(p)

Question

The lag length in a VAR using the BIC proceeds as follows: Among a set of candidate values of p, the estimated lag length _xxxis the value of p A)For which the BIC exceeds the AIC B)That maximizes BIC(p) C)Cannot be determined here since a VAR is a system of equations, not a single one D)That minimizes BIC(p)

Quizplus · Accepted Answer

The lag length in a VAR using the BIC is determined by choosing the value of p that minimizes the BIC. This is because the BIC penalizes the addition of parameters, and the lag length that minimizes the BIC strikes a balance between model complexity and goodness of fit. Choosing the value of p for which the BIC exceeds the AIC (choice A) would not be appropriate because the AIC does not penalize the addition of parameters as heavily as the BIC. Maximizing the BIC (choice B) could lead to overfitting the model. The fact that a VAR is a system of equations is not relevant to the choice of lag length (choice C).

The Lag Length in a VAR Using the BIC Proceeds