I have two variables, assets and operating expenses year-ends for roughly 20 years. I would like to fit a VAR model with these two in order to forecast a couple years ahead.
1) The trouble is that operating expenses have been falling in general year on year. This leads to forecasts at t+2 turning negative which is obviously nonsensical. How can I restrict forecasts of those endogenous variables? In the ARMA framework, I would log-transform, but I am not sure if this is feasible or even advisable for a VAR model.
2) In general, I am concerned about the forecastability of those variables and I have not been very successful with ARMA and VAR forecasts. I have not tried Markov Chains, but coming from a frequentist background, I am not certain that if I devote a lot of time, I would yield results.
For reference only, I have used the vars package in R. Happy to try other R libraries. Please comment if any additional information is needed.