nep-ets New Economics Papers
on Econometric Time Series
Issue of 2008‒08‒14
two papers chosen by
Yong Yin
SUNY at Buffalo

  1. A review of nonfundamentalness and identification in structural VAR models By Lucia Alessi; Matteo Barigozzi; Marco Capasso
  2. Wild-Bootstrapped Variance Ratio Test for Autocorrelation in the Presence of Heteroskedasticity By Jeong, Jinook; Kang, Byunguk

  1. By: Lucia Alessi (Laboratory of Economics and Management (LEM), Sant’Anna School of Advanced Studies, Piazza Martiri della Libertà, 33, 56127 Pisa, Italy.); Matteo Barigozzi (Max Planck Institute of Economics, Kahlaische Strasse, 10, 07745 Jena, Germany.); Marco Capasso (Urban & Regional research centre Utrecht (URU), Faculty of Geosciences, Utrecht University, and Tjalling C. Koopmans Institute (TKI), Utrecht School of Economics, Utrecht University, The Netherlands.)
    Abstract: We review, under a historical perspective, the development of the problem of nonfundamentalness of Moving Average (MA) representations of economic models. Nonfundamentalness typically arises when agents’ information space is larger than the econometrician’s one. Therefore it is impossible for the latter to use standard econometric techniques, as Vector AutoRegression (VAR), to estimate economic models. We restate the conditions under which it is possible to invert an MA representation in order to get an ordinary VAR and identify the shocks, which in a VAR are fundamental by construction. By reviewing the work by Lippi and Reichlin [1993] we show that nonfundamental shocks may be very different from fundamental shocks. Therefore, nonfundamental representations should not be ruled out by assumption and indeed methods to detect nonfundamentalness have been recently proposed in the literature. Moreover, Structural VAR (SVAR) can be legitimately used for assessing the validity of Dynamic Stochastic General Equilibrium models only if the representation associated with the economic model is fundamental. Factor models can be an alternative to SVAR for validation purposes as they do not have to deal with the problem of nonfundamentalness. JEL Classification: C32, C51, C52.
    Keywords: Nonfundamentalness, Structural VAR, Dynamic Stochastic General Equilibrium Models, Factor Models.
    Date: 2008–07
  2. By: Jeong, Jinook; Kang, Byunguk
    Abstract: The Breusch-Godfrey’s LM test is one of the most popular tests for autocorrelation. However, it has been shown that the LM test may be erroneous when there exist heteroskedastic errors in regression model. Some remedies recently have been proposed by Godfrey and Tremayne (2005) and Shim et al. (2006). This paper suggests wild-bootstrapped variance ratio test for autocorrelation in the presence of heteroskedasticity. We show through a Monte Carlo simulation that our wild-bootstrapped VR test has better small sample properties and is robust to the structure of heteroskedasticity.
    Keywords: variance-ratio test; Breusch-Godfrey’s LM test; autocorrelation; heteroskedasticity; wild bootstrap
    JEL: C12 C15
    Date: 2006–12

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