Ch18 case shiller T18.3 VAR in R

[gbekes]

Need to add monthly seasonality to VAR

[gbekes]

Please check R and Python

[adamvig96]

@gbekes Same case as in #13, I created the python code based on stata, and included the monthly seasonality dummies to the model

mse_var_season = []
for i in range(1, 5):

    train_data = data_work.loc[lambda x: x["train" + str(i)] == 1, :].dropna()
    test_data = data_work.loc[lambda x: x["test" + str(i)] == 1, :].dropna()

    model7_season = VAR(
        train_data[["dp", "du", "dlnemp"]], exog=pd.get_dummies(train_data["month"])
    ).fit(1)

    dphat = model7_season.forecast(
        train_data[["dp", "du", "dlnemp"]].values[-model7_season.k_ar :],
        exog_future=pd.get_dummies(test_data["month"]).values,
        steps=12,
    )[:, 0]

    test_data["phat"] = None
    for i in range(0, 12):
        if i == 0:
            test_data.iloc[i, -1] = train_data["p"].values[-1] + dphat[i]
        else:
            test_data.iloc[i, -1] = test_data.iloc[i - 1, -1] + dphat[i]

    errsq = np.square(test_data["p"] - test_data["phat"])

    mse_var_season.append(np.mean(errsq))

rmse_cv_m7_season = np.sqrt(np.mean(mse_var_season))