nep-ets New Economics Papers
on Econometric Time Series
Issue of 2023‒10‒30
five papers chosen by
Jaqueson K. Galimberti, Asian Development Bank

  1. Uniform Priors for Impulse Responses By Jonas E. Arias; Juan F. Rubio-Ramirez; Daniel F. Waggoner
  2. Estimating and Applying Autoregression Models via Their Eigensystem Representation By Leo Krippner
  3. Trimmed Mean Group Estimation of Average Treatment Effects in Ultra Short T Panels under Correlated Heterogeneity By Pesaran, M. H.; Yang, L.
  4. A detection analysis for temporal memory patterns at different time-scales By Fabio Vanni; David Lambert
  5. Covariance matrix filtering and portfolio optimisation: the Average Oracle vs Non-Linear Shrinkage and all the variants of DCC-NLS By Christian Bongiorno; Damien Challet

  1. By: Jonas E. Arias; Juan F. Rubio-Ramirez; Daniel F. Waggoner
    Abstract: There has been a call for caution when using the conventional method for Bayesian inference in set-identified structural vector autoregressions on the grounds that the uniform prior over the set of orthogonal matrices could be nonuniform for individual impulse responses or other quantity of interest. This paper challenges this call by formally showing that, when the focus is on joint inference, the uniform prior over the set of orthogonal matrices is not only sufficient but also necessary for inference based on a uniform joint prior distribution over the identified set for the vector of impulse responses. In addition, we show how to use the conventional method to conduct inference based on a uniform joint prior distribution for the vector of impulse responses. We generalize our results to vectors of objects of interest beyond impulse responses.
    Keywords: Bayesian; SVARs; uniform prior; sign restrictions
    JEL: C11 C33 E47
    Date: 2023–09–28
  2. By: Leo Krippner
    Abstract: This article introduces the eigensystem autoregression (EAR) framework, which allows an AR model to be specified, estimated, and applied directly in terms of its eigenvalues and eigenvectors. An EAR estimation can therefore impose various constraints on AR dynamics that would not be possible within standard linear estimation. Examples are restricting eigenvalue magnitudes to control the rate of mean reversion, additionally imposing that eigenvalues be real and positive to avoid pronounced oscillatory behavior, and eliminating the possibility of explosive episodes in a time-varying AR. The EAR framework also produces closed-form AR forecasts and associated variances, and forecasts and data may be decomposed into components associated with the AR eigenvalues to provide additional diagnostics for assessing the model.
    Keywords: autoregression, lag polynomial, eigenvalues, eigenvectors, companion matrix
    JEL: C22 C53 C63
    Date: 2023–10
  3. By: Pesaran, M. H.; Yang, L.
    Abstract: Under correlated heterogeneity, the commonly used two-way fixed effects estimator is biased and can lead to misleading inference. This paper proposes a new trimmed mean group (TMG) estimator which is consistent at the irregular rate of n1/3 even if the time dimension of the panel is as small as the number of its regressors. Extensions to panels with time effects are provided, and a Hausman-type test of correlated heterogeneity is proposed. Small sample properties of the TMG estimator (with and without time effects) are investigated by Monte Carlo experiments and shown to be satisfactory and perform better than other trimmed estimators proposed in the literature. The proposed test of correlated heterogeneity is also shown to have the correct size and satisfactory power. The utility of the TMG approach is illustrated with an empirical application.
    Keywords: Correlated heterogeneity, irregular estimators, two-way fixed effects, FE-TE, tests of correlated heterogeneity, calorie demand
    JEL: C21 C23
    Date: 2023–10–16
  4. By: Fabio Vanni; David Lambert
    Abstract: This paper introduces a novel methodology that utilizes latency to unveil time-series dependence patterns. A customized statistical test detects memory dependence in event sequences by analyzing their inter-event time distributions. Synthetic experiments based on the renewal-aging property assess the impact of observer latency on the renewal property. Our test uncovers memory patterns across diverse time scales, emphasizing the event sequence's probability structure beyond correlations. The time series analysis produces a statistical test and graphical plots which helps to detect dependence patterns among events at different time-scales if any. Furthermore, the test evaluates the renewal assumption through aging experiments, offering valuable applications in time-series analysis within economics.
    Date: 2023–09
  5. By: Christian Bongiorno; Damien Challet
    Abstract: The Average Oracle, a simple and very fast covariance filtering method, is shown to yield superior Sharpe ratios than the current state-of-the-art (and complex) methods, Dynamic Conditional Covariance coupled to Non-Linear Shrinkage (DCC+NLS). We pit all the known variants of DCC+NLS (quadratic shrinkage, gross-leverage or turnover limitations, and factor-augmented NLS) against the Average Oracle in large-scale randomized experiments. We find generically that while some variants of DCC+NLS sometimes yield the lowest average realized volatility, albeit with a small improvement, their excessive gross leverage and investment concentration, and their 10-time larger turnover contribute to smaller average portfolio returns, which mechanically result in smaller realized Sharpe ratios than the Average Oracle. We also provide simple analytical arguments about the origin of the advantage of the Average Oracle over NLS in a changing world.
    Date: 2023–09

This nep-ets issue is ©2023 by Jaqueson K. Galimberti. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.