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on Econometric Time Series |
| By: | Jin, Xin; Maheu, John M; Yang, Qiao |
| Abstract: | This paper introduces a new factor structure suitable for modeling large realized covariance matrices with full likelihood based estimation. Parametric and nonparametric versions are introduced. Due to the computational advantages of our approach we can model the factor nonparametrically as a Dirichlet process mixture or as an infinite hidden Markov mixture which leads to an infinite mixture of inverse-Wishart distributions. Applications to 10 assets and 60 assets show the models perform well. By exploiting parallel computing the models can be estimated in a matter of a few minutes. |
| Keywords: | infinite hidden Markov model, Dirichlet process mixture, inverse-Wishart, predictive density, high-frequency data |
| JEL: | C11 C14 C32 C58 G17 |
| Date: | 2017–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81920&r=ets |
| By: | Lieb, Lenard (General Economics 2 (Macro)); Smeekes, Stephan (QE / Econometrics) |
| Abstract: | In many macroeconomic applications, impulse responses and their (bootstrap) confidence intervals are constructed by estimating a VAR model in levels - thus ignoring uncertainty regarding the true (unknown) cointegration rank. While it is well known that using a wrong cointegration rank leads to invalid (bootstrap) inference, we demonstrate that even if the rank is consistently estimated, ignoring uncertainty regarding the true rank can make inference highly unreliable for sample sizes encountered in macroeconomic applications. We investigate the effects of rank uncertainty in a simulation study, comparing several methods designed for handling model uncertainty. We propose a new method - Weighted Inference by Model Plausibility (WIMP) - that takes rank uncertainty into account in a fully data-driven way and outperforms all other methods considered in the simulation study. The WIMP method is shown to deliver intervals that are robust to rank uncertainty, yet allow for meaningful inference, approaching fixed rank intervals when evidence for a particular rank is strong. We study the potential ramifications of rank uncertainty on applied macroeconomic analysis by re-assessing the effects of fiscal policy shocks based on a variety of identification schemes that have been considered in the literature. We demonstrate how sensitive the results are to the treatment of the cointegration rank, and show how formally accounting for rank uncertainty can affect the conclusions. |
| Keywords: | Impulse response analysis, cointegration, model uncertainty, bootstrap inference, fiscal policy shocks |
| JEL: | C15 C32 C52 E62 |
| Date: | 2017–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2017022&r=ets |
| By: | Yonghui Zhang; Qiankun Zhou |
| Abstract: | A two-step estimation procedure is proposed to estimate the time-invariant effects, i.e., the slopes of the time-invariant regressors, in dynamic panel data models. In the first step, generalized method of moments (GMM) is used to estimate the time-varying effects, and the second step is to run cross-sectional OLS regression of the time series average of the residuals from the GMM estimation on the time-invariant regressors to estimate the time-invariant effects. It is shown that the OLS estimator of time-invariant effects is pN-consistent and asymptotically normally distributed. A consistent estimator for the asymptotic variance of the estimator is also provided, which is robust to errors with heteroscedasticity and works well even if the errors are serially correlated. Monte Carlo simulations confirm the theoretical findings. Application to income dynamics highlights the importance of estimating time- invariant effects such as education, race and gender in return to schooling. |
| Keywords: | Dynamic panel, GMM, OLS, Time-invariant effects, Return to schooling. |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:lsu:lsuwpp:2017-12&r=ets |