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on Econometric Time Series |
| By: | Giovanni Angelini; Luca Fanelli; Luca Neri |
| Abstract: | When in proxy-SVARs the covariance matrix of VAR disturbances is subject to exogenous, permanent, nonrecurring breaks that generate target impulse response functions (IRFs) that change across volatility regimes, even strong, exogenous external instruments can result in inconsistent estimates of the dynamic causal effects of interest if the breaks are not properly accounted for. In such cases, it is essential to explicitly incorporate the shifts in unconditional volatility in order to point-identify the target structural shocks and possibly restore consistency. We demonstrate that, under a necessary and sufficient rank condition that leverages moments implied by changes in volatility, the target IRFs can be point-identified and consistently estimated. Importantly, standard asymptotic inference remains valid in this context despite (i) the covariance between the proxies and the instrumented structural shocks being local-to-zero, as in Staiger and Stock (1997), and (ii) the potential failure of instrument exogeneity. We introduce a novel identification strategy that appropriately combines external instruments with "informative" changes in volatility, thus obviating the need to assume proxy relevance and exogeneity in estimation. We illustrate the effectiveness of the suggested method by revisiting a fiscal proxy-SVAR previously estimated in the literature, complementing the fiscal instruments with information derived from the massive reduction in volatility observed in the transition from the Great Inflation to the Great Moderation regimes. |
| JEL: | C32 C51 C52 E62 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1193&r=ets |
| By: | Taoufik Bouezmarni; Mohamed Doukali; Abderrahim Taamouti |
| Abstract: | This paper aims to derive a consistent test of Granger causality at a given expectile. We also propose a sup-Wald test for jointly testing Granger causality at all expectiles that has the correct asymptotic size and power properties. Expectiles have the advantage of capturing similar information as quantiles, but they also have the merit of being much more straightforward to use than quantiles, since they are define as least squares analogue of quantiles. Studying Granger causality in expectiles is practically simpler and allows us to examine the causality at all levels of the conditional distribution. Moreover, testing Granger causality at all expectiles provides a sufficient condition for testing Granger causality in distribution. A Monte Carlo simulation study reveals that our tests have good finite-sample size and power properties for a variety of data-generating processes and different sample sizes. Finally, we provide two empirical applications to illustrate the usefulness of the proposed tests. |
| Keywords: | Granger causality in expectiles, Granger causality in distribution, expectile regression function, asymmetric loss function, sup-Wald test |
| JEL: | C12 C22 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:liv:livedp:202207&r=ets |
| By: | Pengfei Zhao; Haoren Zhu; Wilfred Siu Hung NG; Dik Lun Lee |
| Abstract: | Volatility, as a measure of uncertainty, plays a crucial role in numerous financial activities such as risk management. The Econometrics and Machine Learning communities have developed two distinct approaches for financial volatility forecasting: the stochastic approach and the neural network (NN) approach. Despite their individual strengths, these methodologies have conventionally evolved in separate research trajectories with little interaction between them. This study endeavors to bridge this gap by establishing an equivalence relationship between models of the GARCH family and their corresponding NN counterparts. With the equivalence relationship established, we introduce an innovative approach, named GARCH-NN, for constructing NN-based volatility models. It obtains the NN counterparts of GARCH models and integrates them as components into an established NN architecture, thereby seamlessly infusing volatility stylized facts (SFs) inherent in the GARCH models into the neural network. We develop the GARCH-LSTM model to showcase the power of the GARCH-NN approach. Experiment results validate that amalgamating the NN counterparts of the GARCH family models into established NN models leads to enhanced outcomes compared to employing the stochastic and NN models in isolation. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2402.06642&r=ets |