nep-ecm New Economics Papers
on Econometrics
Issue of 2006‒12‒01
fourteen papers chosen by
Sune Karlsson
Orebro University

  1. Tests of Independence in Separable Econometric Models: Theory and Application By Donald J. Brown; Rahul Deb; Marten H. Wegkamp
  2. Tests for Over-identifying Restrictions in Partially Identified Linear Structural Equations By Giovanni Forchini
  3. Bayesian inference in cointegrated VAR models - with applications to the demand for euro area M3 By Anders Warne
  4. Modelling autoregressive processes with a shifting mean By González, Andrés; Teräsvirta, Timo
  5. Estimation of Panel Data Models with Two-sided Censoring By Bo Honoré; Søren Leth-Petersen
  6. Realized volatility: a review By Michael McAleer; Marcelo Cunha Medeiros
  7. Improving Consistent Moment Selection Procedures for Generalized Method of Moments Estimation By Jean-Bernard Chatelain
  9. A New Algebra ic Approach to Representation Theorems for (Co)integrated Processes up to the Second Order By Maria Grazia Zoia
  10. Testing Covariance Stationarity By Zhijie Xiao; Luiz Renato Lima
  11. Sample- and segment-size specific Model Selection in Mixture Regression Analysis By Sarstedt, Marko
  12. The predictive content of financial variables: Evidence from the euro area By Ekaterini Panopoulou
  13. The yen real exchange rate may be stationary after all: evidence from non-linear unit root tests By Georgios Chortareas; George Kapetanios
  14. A Critical Note on Growth Regressions By Tobias Heinrich

  1. By: Donald J. Brown (Economic Growth Center, Yale University); Rahul Deb (Yale University); Marten H. Wegkamp (Florida State University)
    Abstract: A common stochastic restriction in econometric models separable in the latent variables is the assumption of stochastic independence between the unobserved and observed exogenous variables. Both simple and composite tests of this assumption are derived from properties of independence empirical processes and the consistency of these tests is established. As an application, we stimulate estimation of a random quasilinear utility function, where we apply our tests of independence.
    Keywords: Cramér-von Mises distance, empirical independence processes, random utility models, semiparametric econometric models, specification test of independence
    JEL: C12 C13 C30 C52
    Date: 2006–10
  2. By: Giovanni Forchini
    Abstract: Cragg and Donald (1996) have pointed out that the asymptotic size of tests for overidentifying restrictions can be much smaller than the asymptotic nominal size when the structural equation is partially identified. This may lead to misleading inference if the critical values are obtained from a chi-square distribution. To overcome this problem we derive the exact asymptotic distribution of the Byron test statistic. This allows the calculation of asymptotic critical values and p-values corrected for possible failure of identification.
    Keywords: Invariant Tests, Over-identifying restrictions, Partially identified structural equation
    JEL: C12 C30
    Date: 2006–11
  3. By: Anders Warne (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany)
    Abstract: The paper considers a Bayesian approach to the cointegrated VAR model with a uniform prior on the cointegration space. Building on earlier work by Villani (2005b), where the posterior probability of the cointegration rank can be calculated conditional on the lag order, the current paper also makes it possible to compute the joint posterior probability of these two parameters as well as the marginal posterior probabilities under the assumption of a known upper bound for the lag order. When the marginal likelihood identity is used for calculating these probabilities, a point estimator of the cointegration space and the weights is required. Analytical expressions are therefore derived of the mode of the joint posterior of these parameter matrices. The procedure is applied to a money demand system for the euro area and the results are compared to those obtained from a maximum likelihood analysis. JEL Classification: C11, C15, C32, E41.
    Keywords: Bayesian inference, cointegration, lag order, money demand, vector autoregression.
    Date: 2006–11
  4. By: González, Andrés (Unidad de investigaciones économicas, Banco de la República); Teräsvirta, Timo (Department of Economics, University of Aarhus, and Department of Economic Statistics, Stockholm School of Economics)
    Abstract: In this paper we introduce an autoregressive model with a deterministically shifting intercept. This implies that the model has a shifting mean and is thus nonstationary but stationary around a nonlinear deterministic component. The shifting intercept is defined as a linear combination of logistic transition functions with time as the transition variables. The number of transition functions is determined by selecting the appropriate functions from a possibly large set of alternatives using a sequence of specification tests. This selection procedure is a modification of a similar technique developed for neural network modelling by White (2006). A Monte Carlo experiment is conducted to show how the proposed modelling procedure and some of its variants work in practice. The paper contains two applications in which the results are compared with what is obtained by assuming that the time series used as examples may contain structural breaks instead of smooth transitions and selecting the number of breaks following the technique of Bai and Perron (1998).
    Keywords: deterministic shift; nonlinear autoregression; nonstationarity; nonlinear trend; smooth transition; structural change
    JEL: C22 C52
    Date: 2006–09–27
  5. By: Bo Honoré (Department of Economics, Princeton University); Søren Leth-Petersen (Akf - Institute of Local Government Studies, Denmark)
    Abstract: It is straightforward to construct moment conditions for two-sided censored panel data regression models with strictly exogenous explanatory variables. The contribution of this note is to show that one set of these moment conditions uniquely identify the parameters of the model under a natural full-rank condition.
    Date: 2006–11
  6. By: Michael McAleer (University of Western Australia); Marcelo Cunha Medeiros (Department of Economics PUC-Rio)
    Abstract: This paper reviews the exciting and rapidly expanding literature on realized volatility. After presenting a general univariate framework for estimating realized volatilities, a simple discrete time model is presented in order to motivate the main results. A continuous time specification provides the theoretical foundation for the main results in this literature. Cases with and without microstructure noise are considered, and it is shown how microstructure noise can cause severe problems in terms of consistent estimation of the daily realized volatility. Independent and dependent noise processes are examined. The most important methods for providing consistent estimators are presented, and a critical exposition of different techniques is given. The finite sample properties are discussed in comparison with their asymptotic properties. A multivariate model is presented to discuss estimation of the realized covariances. Various issues relating to modelling and forecasting realized volatilities are considered. The main empirical findings using univariate and multivariate methods are summarized.
    Date: 2006–11
  7. By: Jean-Bernard Chatelain (PSE - Paris-Jourdan Sciences Economiques - [CNRS : UMR8545] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale des Ponts et Chaussées][Ecole Normale Supérieure de Paris], EconomiX - [CNRS : UMR7166] - [Université de Paris X - Nanterre])
    Abstract: This paper proposes consistent moment selection procedures for generalized method of moments estimation based on the J test of over-identifying restrictions (Hansen [1982]) and on the Eichenbaum, Hansen and Singleton [1988] test of the validity of a subset of moment conditions.
    Keywords: Generalized method of moments, test of over-identifying restrictions, test of subset of over-identifying restrictions, Consistent Moment Selection
    Date: 2006–11–08
  8. By: Jorge Barrientos Marin (Universidad de Alicante)
    Abstract: The form of the Engel curve has long been a subject of discussion in appliedeconometrics and until now there has no been definitive conclusion about its form. In this paperan additive partially linear model is used to estimate semiparametrically the effect of totalexpenditure in the context of the Engel curves. Additionally, we consider the non-parametricinclusion of some regressors which traditionally have a non linear effect such as age andschooling. To that end we compare an additive partially linear model with the fullynonparametric one using recent popular test statistics. We also provide the p-values computedby bootstrap and subsampling schemes for the proposed test statistics. Empirical analysis basedon data drawn from the Spanish Expenditure Survey 1990-91 shows that modelling the effectsof expenditure, age and schooling on budget share deserves a treatment better than that adoptedin simple semiparametric analysis.
    Keywords: Engel curve, expenditure, nonparametric estimation, marginal integration
    JEL: C72 C78
    Date: 2006–11
  9. By: Maria Grazia Zoia
    Abstract: The paper establishes a unified representation theorem for (co)integrated processes up to the second order which provides a compact and informative insight into the solution of VAR models with unit roots, and sheds light on the cointegration features of the engendered processes. The theorem is primarily stated by taking a one-lag specification as a reference frame, and it is afterwards extended to cover the case of an arbitrary number of lags via a companion-form based approach. All proofs are obtained by resorting to an innovative and powerful algebraic apparatus tailored to the derivation of the intended results.
    Keywords: Unified representation theorem, Cointegration, Orthogonal-complement algebra, Laurent expansion in matrix form
    Date: 2006–10
  10. By: Zhijie Xiao; Luiz Renato Lima
    Date: 2006–11
  11. By: Sarstedt, Marko
    Abstract: As mixture regression models increasingly receive attention from both theory and practice, the question of selecting the correct number of segments gains urgency. A misspecification can lead to an under- or oversegmentation, thus resulting in flawed management decisions on customer targeting or product positioning. This paper presents the results of an extensive simulation study that examines the performance of commonly used information criteria in a mixture regression context with normal data. Unlike with previous studies, the performance is evaluated at a broad range of sample/segment size combinations being the most critical factors for the effectiveness of the criteria from both a theoretical and practical point of view. In order to assess the absolute performance of each criterion with respect to chance, the performance is reviewed against so called chance criteria, derived from discriminant analysis. The results induce recommendations on criterion selection when a certain sample size is given and help to judge what sample size is needed in order to guarantee an accurate decision based on a certain criterion respectively.
    Keywords: Mixture Regression; Model Selection; Information Criteria
    JEL: M31 C30
    Date: 2006
  12. By: Ekaterini Panopoulou
    Abstract: This paper investigates the predictive ability of financial variables for real growth in the euro area through bivariate and multivariate non-parametric Granger causality tests. Apart from assessing the within-country forecasting ability of commonly-employed financial variables, such as the term spread, the stock market returns and the growth of real money supply, we also test for cross-country influences. Employing a monthly dataset for the period from January 1988 to May 2005, we find that financial variables are useful leading indicators for euro area growth at a joint level, albeit at different horizons, ranging from one to six quarters. In addition to non-parametrically testing for Granger causality, we consider testing the out of sample forecasting ability of the respective financial variables in a parametric framework for the period from 2001 onwards. Our results from this parametric framework corroborate our non-parametric findings, yielding the stock market returns and the term spread as the single more powerful predictor on a country and euro area basis, respectively.
    Keywords: Granger causality; forecasting accuracy; money supply; output growth; term spread; stock returns;
    Date: 2006–11–16
  13. By: Georgios Chortareas; George Kapetanios
    Abstract: The empirical literature that tests for purchasing power parity (PPP) by focusing on the stationarity of real exchange rates has so far provided, at best, mixed results. The behaviour of the yen real exchange rate has most stubbornly challenged the PPP hypothesis and deepened this puzzle. This paper contributes to this discussion by providing new evidence on the stationarity of bilateral yen real exchange rates. We employ a non-linear version of the Augmented Dickey-Fuller test, based on an exponentially smooth-transition autoregressive model (ESTAR) that enhances the power of the tests against mean-reverting non-linear alternative hypotheses. Our results suggest that the bilateral yen real exchange rates against the other G7 and Asian currencies were mean reverting during the post-Bretton Woods era. Thus, the real yen behaviour may not be so different after all but simply perceived to be so due to the use of a restrictive alternative hypothesis in previous tests.
  14. By: Tobias Heinrich
    Abstract: Benhabib and Spiegel (1994) argue that regressing cross-country income changes on a catch-up term has the ability to distinguish between the Nelson-Phelps and Neo-classical approach. This paper circumstantiates that these findings constitute a statistical artefact according to Galton's Fallacy.
    Keywords: Cross-country growth, technological catch-up, Galton's Fallacy, regression to the mean
    JEL: C10 C22 O40
    Date: 2005–06

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