Spatial vector autoregressive model with calendar variation and its application

The Vector Autoregressive (VAR) model can be used to determine the relationships among several interacting variables in time series data. While the Spatial VAR (SpVAR) model was developed to accommodate temporal dynamics and spatial dynamics simultaneously. Time series data in economics are often influenced by events such as holidays occurring based upon the lunar calendar. Hence, it happens on different dates and months each year. Such holidays are called calendar variations. The purpose of this paper is to develop a SpVAR model with the effects of calendar variations, discuss the parameter estimation method and apply the model to Inflation and Money Supply data in three cities in West Java, Indonesia. Parameters are estimated by using Full Information Maximum Likelihood. The result for the application is there is a relationship between Money Supply in Cirebon and Inflation in Bandung and Tasikmalaya. Also, there are effects of calendar variation on Inflation and Money Supply in all three cities.