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Keywords:

  • multivariate time series;
  • copula autoregression;
  • vector autoregression;
  • forecasting time series;
  • vine copula

The analysis of multivariate time series is a common problem in areas like finance and economics. The classical tools for this purpose are vector autoregressive models. These however are limited to the modeling of linear and symmetric dependence. We propose a novel copula-based model that allows for the non-linear and non-symmetric modeling of serial as well as between-series dependencies. The model exploits the flexibility of vine copulas, which are built up by bivariate copulas only. We describe statistical inference techniques for the new model and discuss how it can be used for testing Granger causality. Finally, we use the model to investigate inflation effects on industrial production, stock returns and interest rates. In addition, the out-of-sample predictive ability is compared with relevant benchmark models. Copyright © 2014 John Wiley & Sons, Ltd.