nep-ecm New Economics Papers
on Econometrics
Issue of 2007‒03‒03
eleven papers chosen by
Sune Karlsson
Orebro University

  1. GARCH-based identification of triangular systems with an application to the CAPM: still living with the roll critique By Todd Prono
  2. On the Pareto Type III distribution By Giulio Bottazzi
  3. A Note on the Pooling of Individual PANIC Unit Root Tests By Westerlund, Joakim
  4. Feasible inference for realised variance in the presence of jumps By Almut Elisabeth Dorothea Veraart
  5. "On the estimation of a large sparse Bayesian system: the Snaer program" By Dmitry Danilov; Jan R. Magnus
  6. Threshold effects in cointegrating relationships By Jesus Gonzalo; Jean-Yves Pitarakis
  7. A Note on the Central Limit Theorem for Bipower Variation of General Functions By Silja Kinnebrock; Mark Podolskij
  8. The sign of asymmetry and the Taylor Effect in stochastic volatility models By Helena Veiga
  9. Discrete Choice Modeling By William Greene
  10. Derived Measurement in Macroeconomics: Two Approaches for Measuring the NAIRU Considered By Peter Rodenburg
  11. Observed Inflation Forecasts and the New Keynesian Phillips Curve By Chengsi Zhang; Denise R. Osborn; Dong Heon Kim

  1. By: Todd Prono
    Abstract: This paper presents a new method for identifying triangular systems of time-series data. Identification is the product of a bivariate GARCH process. Relative to the literature on GARCH-based identification, this method distinguishes itself both by allowing for a timevarying covariance and by not requiring a complete estimation of the GARCH parameters. Estimation follows OLS and standard univariate GARCH and ARMA techniques, or GMM. A Monte Carlo study of the GMM estimator is provided. The identification method is then applied in testing a conditional version of the CAPM.
    Keywords: Capital assets pricing model ; Time-series analysis
    Date: 2006
  2. By: Giulio Bottazzi
    Abstract: This short note analyzes the distributional properties of Pareto Type III random variables. We introduce a three parameters version of the orignal two parameters distribution proposed by Pareto and derive both the density and the characteristic function. The analytic expression of the inverse distribution function is also obtained, together with a simple series expansion of its moments of any order. Finally, we propose a simple statistical exercise designed to show the increased reliability of the Pareto Type III distribution in describing asymptotically dumped power-like behaviors.
    Date: 2007–03–01
  3. By: Westerlund, Joakim (Department of Economics, Lund University)
    Abstract: One of the most cited studies in recent years within the field of nonstationary panel data analysis is that of Bai and Ng (2004, A PANIC Attack on Unit Roots and Cointegration. Econometrica 72, 1127-1177), in which the authors propose PANIC, a new framework for analyzing the nonstationarity of panels with idiosyncratic and common components. This paper shows that, although valid at the level of the individual unit, PANIC is not an asymptotically valid framework for pooling tests at the aggregate panel level.
    Keywords: Panel Unit Root Test; Pooling; Common Factor; Cross-Sectional Dependence
    JEL: C21 C22 C23
    Date: 2007–02–19
  4. By: Almut Elisabeth Dorothea Veraart
    Abstract: Here we assume that the logarithmic asset price is given by a semimartingle. Jacod (2006) has derived an infeasible central limit theorem for the realized variance in such a general framework. However, here we focus on constructing a feasible limit theorem. We propose a new estimator for the asymptotic variance of the realized variance. This new estimator is based on generalized versions of the realized variance and the realized bipower variation. We prove the consistency of this estimator and can derive a feasible limit theorem for the realized variance.
    Keywords: Bipower variation, feasible inference, realized variance, semimartingale, stochastic volatility
    JEL: C4 C5
    Date: 2007
  5. By: Dmitry Danilov (Eurandom, Eindhoven University of Technology); Jan R. Magnus (Department of Econometrics & OR, Tilburg University)
    Abstract: The Snaer program calculates the posterior mean and variance of variables on some of which we have data (with precisions), on some we have prior information (with precisions), and on some prior indicator ratios (with precisions) are available. The variables must satisfy anumber of exact restrictions. The system is both large and sparse. Two aspects of the sta-tistical and computational development are a practical procedure to solve a linear integer system, and a stable linearization routine for ratios. We test our numerical method to solve large sparse linear least-squares estimation problems, and find that it performs well, even when the n ~k design matrix is large(nk equivalent 2$^{27.5}$).
    Date: 2007–02
  6. By: Jesus Gonzalo; Jean-Yves Pitarakis
    Abstract: In this paper we introduce threshold type nonlinearities within a single equation cointegrating regression model and propose a testing procedure for testing the null hypothesis of linear cointegration versus cointegration with threshold effects. Our framework allows the modelling of long run equilibrium relationships that may switch according to the magnitude of a threshold variable assumed to be stationary and ergodic and thus constitutes an attempt to deal econometrically with the potential presence of multiple equilibria. The framework is flexible enough to accomodate regressor endogeneity and serial correlation.
    Date: 2006–06
  7. By: Silja Kinnebrock; Mark Podolskij
    Abstract: In this paper we present the central limit theorem for general functions of the increments of Brownian semimartingales. This provides a natural extension of the results derived in Barndorff-Nielsen, Graversen, Jacod, Podolskij & Shephard (2006), who showed the central limit theorem for even functions. We prove an infeasible central limit theorem for general functions and state some assumptions under which a feasible version of our results can be obtained. Finally, we present some examples from the literature to which our theory can be applied.
    Keywords: Bipower Variation; Central Limit Theorem; Diffusion Models; High-Frequency Data; Semimartingale Theory
    Date: 2007
  8. By: Helena Veiga
    Abstract: According to the Taylor-Effect the autocorrelations of absolute financial returns are higher than the ones of squared returns. In this work, we analyze this empirical property for three different asymmetric stochastic volatility models, with short and/or long memory. Specially, we investigate how the Taylor-Effect relates to the most important model characteristics: its asymmetry and its capacity to generate volatility persistence and kurtosis. Finally, we realize Monte Carlo experiments to infer about possible biases of the sample Taylor-Effect and fit the models to the return series of the Dow Jones.
    Date: 2007–02
  9. By: William Greene
    Date: 2007
  10. By: Peter Rodenburg (Universiteit van Amsterdam)
    Abstract: This paper investigates two different procedures for the measurement of the NAIRU; one based on structural modeling while the other is a statisticai approach using Vector Auto Regression (VAR)-models. Both measurement procedures are assessed by confronting them with the dominant theory of measurement, the Representation Theory of Measurement, which states that for sound measurement a strict isomorphism (strict one-to-one mapping) is needed between variations in the phenomenon (the NAIRU) and numbers. The paper argues that shifts of the Phillips-curve are not a problem for the structural approach to measurement of the NAIRU, as the NAIRU itself is a time-varying concept. It is however, the impossibility to identify the exact shape of the Phillips-curve that causes problems of multiple empirical, relational forms and hence non-unique isomorphic mappings for measurement. While VAR-models are being accused of being ‘atheoretical macroeconometrics’ in the literature, the Wold decomposition theorem applied to the VAR brings out a stable correspondence between variance of the phenomenon (the NAIRU) and numbers and turns the set of equations into an isomorphic mapping that can serve as a useful foundation for the construction of a measuring instrument.
    Keywords: NAIRU; Phillips curve; VAR-models; Measurement in macroeconomics
    JEL: B E
    Date: 2007–02–01
  11. By: Chengsi Zhang; Denise R. Osborn; Dong Heon Kim
    Abstract: Estimating the micro-founded New Keynesian Phillips Curve using rational inflation expectation proxies has often found that the output gap is not a valid measure of inflation pressure. This paper investigates the empirical success of the NKPC in explaining US inflation, using observed measures of inflation expectations and taking account of serial correlation in the stylized NKPC. Contrary to recent results indicating no role for the GDP gap, we find it to be a statistically significant driving variable for inflation while labor income share is generally insignificant. The paper also develops an extended model in which serial correlation is absent and the output gap remains a valid inflation driving force. In most of our estimations, however, lagged inflation dominates the role of inflation expectations, casting doubt on the extent to which price setting is forward-looking over the period 1968 to 2005. From an econometric perspective, the paper uses GMM estimation to account for endogeneity while also addressing concerns raised in recent studies about weak instrumental variables used in estimating NKPC models.
    Date: 2006

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