
on Econometric Time Series 
By:  Joon Y. Park; Mototsugu Shintani 
Date:  2006–09–02 
URL:  http://d.repec.org/n?u=RePEc:cla:levrem:321307000000000316&r=ets 
By:  Manuel Arellano; Jinyong Hahn (CEMFI, Centro de Estudios Monetarios y Financieros) 
Abstract:  The purpose of this paper is to review recently development methods of estimation of nonlinear fixed effects panel data models with reduced bias properties. We begin by describing fixed effects estimators and the incidental parameters problem. Next the explain how to construct analytical bias correction of estimators, followed by bias correction of estimators, followed by bias correction of the moment equation, and bias corrections for the concentrated likelihood. We then turn to discuss other approaches leading to bias correction based on orthogonalization and their extensions. The remaining sections consider quasi maximum likelihood estimation for dynamic models, the estimation of marginal effects, and automatic methods based on simulation. 
Keywords:  Asymptotic corrections, bias reduction, fixed effects, modifies likelihood, nonlinear models, panel data, simulation methods. 
JEL:  C23 
Date:  2005–10 
URL:  http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2005_0507&r=ets 
By:  Bill Russell, Anindya Banerjee 
Abstract:  Modern theories of inflation incorporate a vertical longrun Phillips curve and are usually estimated using techniques that ignore the nonstationary behaviour of inflation. Consequently, the estimates obtained are imprecise and are unable to distinguish between competing models of inflation and test the veracity of a vertical longrun Phillips curve. We estimate a Phillips curve model taking into account the nonstationary properties in inflation and identify a small but significant positive relationship between inflation and unemployment. The results provide some evidence that the tradeoff between inflation and the unemployment rate in the shortrun worsens as the mean rate of inflation increases. 
Keywords:  Inflation, unemployment, longrun Phillips curve, business cycle, GMM 
JEL:  C22 C32 C52 D40 E31 E32 
Date:  2006 
URL:  http://d.repec.org/n?u=RePEc:eui:euiwps:eco2006/16&r=ets 
By:  Elena Pesavento 
Abstract:  Numerous tests for integration and cointegration have been proposed in the literature. Since Elliott, Rothemberg and Stock (1996) the search for tests with better power has moved in the direction of finding tests with some optimality properties both in univariate and multivariate models. Although the optimal tests constructed so far have asymptotic power that is indistinguishable from the power envelope, it is well known that they can have severe size distortions in finite samples. This paper proposes a simple and powerful test that can be used to test for unit root or for no cointegration when the cointegration vector is known. Although this test is not optimal in the sense of Elliott and Jansson (2003), it has better finite sample size properties while having asymptotic power curves that are indistinguishable from the power curves of optimal tests. Similarly to Hansen (1995), Elliott and Jansson (2003), Zivot (2000), and Elliott, Jansson and Pesavento (2005) the proposed test achieves higher power by using additional information contained in covariates correlated with the variable being tested. The test is constructed by applying Hansen’s test to variables that are detrended under the alternative in a regression augmented with leads and lags of the stationary covariates. Using local to unity parametrization, the asymptotic distribution of the test under the null and the local alternative is analytically computed. 
Keywords:  Unit Root Test, GLS detrending. 
JEL:  C32 
Date:  2006 
URL:  http://d.repec.org/n?u=RePEc:eui:euiwps:eco2006/18&r=ets 
By:  Markku Lanne 
Abstract:  Forecasts of the realized volatility of the exchange rate returns of the Euro against the U.S. Dollar obtained directly and through decomposition are compared. Decomposing the realized volatility into its continuous sample path and jump components and modeling and forecasting them separately instead of directly forecasting the realized volatility is shown to lead to improved outofsample forecasts. Moreover, gains in forecast accuracy are robust with respect to the details of the decomposition. 
Keywords:  Mixture model, Jump, Realized volatility, Gamma distribution 
JEL:  C22 C52 C53 G15 
Date:  2006 
URL:  http://d.repec.org/n?u=RePEc:eui:euiwps:eco2006/20&r=ets 
By:  Markku Lanne, Helmut Luetkepohl 
Abstract:  A central issue of monetary policy analysis is the specification of monetary policy shocks. In a structural vector autoregressive setting there has been some controversy about which restrictions to use for identifying the shocks because standard theories do not provide enough information to fully identify monetary policy shocks. In fact, to compare different theories it would even be desirable to have overidentifying restrictions which would make statistical tests of different theories possible. It is pointed out that some progress towards overidentifying monetary policy shocks can be made by using specific data properties. In particular, it is shown that changes in the volatility of the shocks can be used for identification. Based on monthly US data from 19651996 different theories are tested and it is found that associating monetary policy shocks with shocks to nonborrowed reserves leads to a particularly strong rejection of the model whereas assuming that the Fed accommodates demand shocks total reserves cannot be rejected. 
Keywords:  Monetary policy, structural vector autoregressive analysis, vector autoregressive process, impulse responses 
JEL:  C32 
Date:  2006 
URL:  http://d.repec.org/n?u=RePEc:eui:euiwps:eco2006/23&r=ets 
By:  Meitz, Mika (Dept. of Economic Statistics, Stockholm School of Economics); Saikkonen, Pentti (Dept. of Mathematics and Statistics, University of Helsinki) 
Abstract:  This paper studies the stability of nonlinear autoregressive models with conditionally heteroskedastic errors. We consider a nonlinear autoregression of order p (AR(p)) with the conditional variance specified as a nonlinear first order generalized autoregressive conditional heteroskedasticity (GARCH(1,1)) model. Conditions under which the model is stable in the sense that its Markov chain representation is geometrically ergodic are provided. This implies the existence of an initial distribution such that the process is strictly stationary and betamixing. Conditions under which the stationary distribution has finite moments are also given. The results cover several nonlinear specifications recently proposed for both the conditional mean and conditional variance. 
Keywords:   
JEL:  C22 
Date:  2006–06–01 
URL:  http://d.repec.org/n?u=RePEc:hhs:hastef:0632&r=ets 
By:  Fischer, Christoph; Porath, Daniel 
Abstract:  Panel unit root tests of real exchange rates – as opposed to univariate tests – usually reject nonstationarity. These tests, however, could be biased if the real exchange rate contained MA roots. Indeed, two independent arguments claim that the real exchange rate, being a sum of a stationary and a nonstationary component, is possibly an ARIMA (1, 1, 1) process. Monte Carlo simulations show, how systematic changes in the parameters of the components, of the test equation and of the correlation matrix affect the size of first and second generation panel unit root tests. Two components of the real exchange rate, the real exchange rate of a single good and a weighted sum of relative prices, are constructed from the data for a panel of countries. Computation of the relevant parameters reveals that panel unit root tests of the real exchange rate are severely oversized, usually much more so than simple ADF tests. Thus, the evidence for PPP from panel unit root tests may be merely due to extreme size biases. 
Keywords:  panel unit root test, purchasing power parity, real exchange rate, Monte Carlo simulation 
JEL:  C33 F31 
Date:  2006 
URL:  http://d.repec.org/n?u=RePEc:zbw:bubdp1:4721&r=ets 
By:  Bohl, Martin; Döpke, Jörg; Pierdzioch, Christian 
Abstract:  Using monthly data for the period 1953–2003, we apply a realtime modeling approach to investigate the implications of U.S. political stock market anomalies for forecasting excess stock returns. Our empirical findings show that political variables, selected on the basis of widely used model selection criteria, are often included in realtime forecasting models. However, they do not contribute to systematically improving the performance of simple trading rules. For this reason, political stock market anomalies are not necessarily an indication of market inefficiency. 
Keywords:  Political stock market anomalies, predictability of stock returns, efficient markets hypothesis, realtime forecasting 
JEL:  G11 G14 
Date:  2006 
URL:  http://d.repec.org/n?u=RePEc:zbw:bubdp1:4723&r=ets 