IDEAS home Printed from https://ideas.repec.org/a/eee/csdana/v100y2016icp712-733.html
   My bibliography  Save this article

Moment Ratio estimation of autoregressive/unit root parameters and autocorrelation-consistent standard errors

Author

Listed:
  • McCulloch, J. Huston

Abstract

A Moment Ratio estimator is proposed for an AR(p) model of the errors in an OLS regression, that provides standard errors with far less median bias and confidence intervals with far better coverage than conventional alternatives. A unit root, and therefore the absence of cointegration, does not necessarily mean that a correlation between the variables is spurious. The estimator is applied to a quadratic trend model of real GDP. The rate of change of GDP growth is negative with finite standard error but is insignificant. The “output gap,” often used as a guide to monetary policy, has an infinite standard error and is therefore a statistical illusion.

Suggested Citation

  • McCulloch, J. Huston, 2016. "Moment Ratio estimation of autoregressive/unit root parameters and autocorrelation-consistent standard errors," Computational Statistics & Data Analysis, Elsevier, vol. 100(C), pages 712-733.
    • Handle: RePEc:eee:csdana:v:100:y:2016:i:c:p:712-733
    DOI: 10.1016/j.csda.2015.07.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167947315001607
    Download Restriction: Full text for ScienceDirect subscribers only.
    File URL: https://libkey.io/10.1016/j.csda.2015.07.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Nelson, Charles R & Kang, Heejoon, 1981. "Spurious Periodicity in Inappropriately Detrended Time Series," Econometrica, Econometric Society, vol. 49(3), pages 741-751, May.
    2. Bunzel, Helle & Vogelsang, Timothy J., 2005. "Powerful Trend Function Tests That Are Robust to Strong Serial Correlation, With an Application to the Prebisch-Singer Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 381-394, October.
    3. Yixiao Sun & Peter C. B. Phillips & Sainan Jin, 2008. "Optimal Bandwidth Selection in Heteroskedasticity-Autocorrelation Robust Testing," Econometrica, Econometric Society, vol. 76(1), pages 175-194, January.
    4. Karim M. Abadir & Paolo Paruolo, 2002. "Simple Robust Testing of Regression Hypotheses: A Comment," Econometrica, Econometric Society, vol. 70(5), pages 2097-2099, September.
    5. Whitney K. Newey & Kenneth D. West, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(4), pages 631-653.
    6. Andrews, Donald W K & Chen, Hong-Yuan, 1994. "Approximately Median-Unbiased Estimation of Autoregressive Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 187-204, April.
    7. Eugene Canjels & Mark W. Watson, 1997. "Estimating Deterministic Trends In The Presence Of Serially Correlated Errors," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 184-200, May.
    8. Politis, Dimitris N., 2011. "Higher-Order Accurate, Positive Semidefinite Estimation Of Large-Sample Covariance And Spectral Density Matrices," Econometric Theory, Cambridge University Press, vol. 27(4), pages 703-744, August.
    9. McCulloch, J. Huston, 1985. "Interest-risk sensitive deposit insurance premia : Stable ACH estimates," Journal of Banking & Finance, Elsevier, vol. 9(1), pages 137-156, March.
    10. Nicholas M. Kiefer & Timothy J. Vogelsang & Helle Bunzel, 2000. "Simple Robust Testing of Regression Hypotheses," Econometrica, Econometric Society, vol. 68(3), pages 695-714, May.
    11. Nicholas M. Kiefer & Timothy J. Vogelsang, 2002. "Heteroskedasticity-Autocorrelation Robust Standard Errors Using The Bartlett Kernel Without Truncation," Econometrica, Econometric Society, vol. 70(5), pages 2093-2095, September.
    12. Andrews, Donald W K & Monahan, J Christopher, 1992. "An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," Econometrica, Econometric Society, vol. 60(4), pages 953-966, July.
    13. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    14. Choi, Chi-Young & Hu, Ling & Ogaki, Masao, 2008. "Robust estimation for structural spurious regressions and a Hausman-type cointegration test," Journal of Econometrics, Elsevier, vol. 142(1), pages 327-351, January.
    15. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    16. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    17. Harvey, David I. & Leybourne, Stephen J. & Taylor, A.M. Robert, 2007. "A simple, robust and powerful test of the trend hypothesis," Journal of Econometrics, Elsevier, vol. 141(2), pages 1302-1330, December.
    18. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    19. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
    20. Li, Quan & Reuveny, Rafael, 2003. "Economic Globalization and Democracy: An Empirical Analysis," British Journal of Political Science, Cambridge University Press, vol. 33(1), pages 29-54, January.
    21. Andrews, Donald W K, 1993. "Exactly Median-Unbiased Estimation of First Order Autoregressive/Unit Root Models," Econometrica, Econometric Society, vol. 61(1), pages 139-165, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vladimir V. Olkhovik & Olga I. Lyutova & Edvardas Juchnevicius, 2022. "Economic Growth Models and FDI in the CIS Countries During the Period of Digitalization," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 2, pages 73-90, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xu, Ke-Li, 2012. "Robustifying multivariate trend tests to nonstationary volatility," Journal of Econometrics, Elsevier, vol. 169(2), pages 147-154.
    2. Preinerstorfer, David & Pötscher, Benedikt M., 2016. "On Size And Power Of Heteroskedasticity And Autocorrelation Robust Tests," Econometric Theory, Cambridge University Press, vol. 32(2), pages 261-358, April.
    3. Pötscher, Benedikt M. & Preinerstorfer, David, 2017. "Further Results on Size and Power of Heteroskedasticity and Autocorrelation Robust Tests, with an Application to Trend Testing," MPRA Paper 81053, University Library of Munich, Germany.
    4. Hirukawa, Masayuki, 2023. "Robust Covariance Matrix Estimation in Time Series: A Review," Econometrics and Statistics, Elsevier, vol. 27(C), pages 36-61.
    5. Casini, Alessandro, 2023. "Theory of evolutionary spectra for heteroskedasticity and autocorrelation robust inference in possibly misspecified and nonstationary models," Journal of Econometrics, Elsevier, vol. 235(2), pages 372-392.
    6. Kim, Min Seong & Sun, Yixiao, 2013. "Heteroskedasticity and spatiotemporal dependence robust inference for linear panel models with fixed effects," Journal of Econometrics, Elsevier, vol. 177(1), pages 85-108.
    7. Federico Belotti & Alessandro Casini & Leopoldo Catania & Stefano Grassi & Pierre Perron, 2023. "Simultaneous bandwidths determination for DK-HAC estimators and long-run variance estimation in nonparametric settings," Econometric Reviews, Taylor & Francis Journals, vol. 42(3), pages 281-306, February.
    8. Yeonwoo Rho & Xiaofeng Shao, 2015. "Inference for Time Series Regression Models With Weakly Dependent and Heteroscedastic Errors," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 33(3), pages 444-457, July.
    9. Pötscher, Benedikt M. & Preinerstorfer, David, 2018. "Controlling the size of autocorrelation robust tests," Journal of Econometrics, Elsevier, vol. 207(2), pages 406-431.
    10. Perron, Pierre & Yabu, Tomoyoshi, 2009. "Estimating deterministic trends with an integrated or stationary noise component," Journal of Econometrics, Elsevier, vol. 151(1), pages 56-69, July.
    11. Xu, Ke-Li, 2016. "Multivariate trend function testing with mixed stationary and integrated disturbances," Journal of Multivariate Analysis, Elsevier, vol. 147(C), pages 38-57.
    12. Ray, Surajit & Savin, N.E. & Tiwari, Ashish, 2009. "Testing the CAPM revisited," Journal of Empirical Finance, Elsevier, vol. 16(5), pages 721-733, December.
    13. Wouter J. den Haan & Andrew T. Levin, 2000. "Robust Covariance Matrix Estimation with Data-Dependent VAR Prewhitening Order," NBER Technical Working Papers 0255, National Bureau of Economic Research, Inc.
    14. Kim, Min Seong & Sun, Yixiao & Yang, Jingjing, 2017. "A fixed-bandwidth view of the pre-asymptotic inference for kernel smoothing with time series data," Journal of Econometrics, Elsevier, vol. 197(2), pages 298-322.
    15. Boudoukh, Jacob & Israel, Ronen & Richardson, Matthew, 2022. "Biases in long-horizon predictive regressions," Journal of Financial Economics, Elsevier, vol. 145(3), pages 937-969.
    16. Issler, João Victor & Soares, Ana Flávia, 2019. "Central Bank credibility and inflation expectations: a microfounded forecasting approach," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 812, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    17. Vogelsang, Timothy J. & Franses, Philip Hans, 2005. "Testing for common deterministic trend slopes," Journal of Econometrics, Elsevier, vol. 126(1), pages 1-24, May.
    18. Politis, D N, 2009. "Higher-Order Accurate, Positive Semi-definite Estimation of Large-Sample Covariance and Spectral Density Matrices," University of California at San Diego, Economics Working Paper Series qt66w826hz, Department of Economics, UC San Diego.
    19. Ulrich K. Müller, 2014. "HAC Corrections for Strongly Autocorrelated Time Series," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 32(3), pages 311-322, July.
    20. Hartigan, Luke, 2018. "Alternative HAC covariance matrix estimators with improved finite sample properties," Computational Statistics & Data Analysis, Elsevier, vol. 119(C), pages 55-73.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:csdana:v:100:y:2016:i:c:p:712-733. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/csda .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.