Testing Constancy of the Error Covariance Matrix in Vector Models against Parametric Alternatives using a Spectral Decomposition
AbstractI consider multivariate (vector) time series models in which the error covariance matrix may be time-varying. I derive a test of constancy of the error covariance matrix against the alternative that the covariance matrix changes over time. I design a new family of Lagrange-multiplier tests against the alternative hypothesis that the innovations are time-varying according to several parametric specifications. I investigate the size and power properties of these tests and find that the test with smooth transition specification has satisfactory size properties. The tests are informative and may suggest to consider multivariate volatility modelling.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2014-11.
Date of creation: 04 Apr 2014
Date of revision:
Contact details of provider:
Web page: http://www.econ.au.dk/afn/
Covariance constancy; Error covariance structure; Lagrange multiplier test; Spectral decomposition; Auxiliary regression; Model misspecification; Monte Carlo simulation;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eklund, Bruno & Terasvirta, Timo, 2007.
"Testing constancy of the error covariance matrix in vector models,"
Journal of Econometrics,
Elsevier, vol. 140(2), pages 753-780, October.
- Eklund, Bruno & Teräsvirta, Timo, 2003. "Testing constancy of the error covariance matrix in vector models," Working Paper Series in Economics and Finance 549, Stockholm School of Economics, revised 18 Jan 2006.
- Markku Lanne & Helmut Luetkepohl, 2008.
"Stock Prices and Economic Fluctuations:A Markov Switching Structural VectorAutoregressive Analysis,"
CESifo Working Paper Series
2407, CESifo Group Munich.
- Markku Lanne & Helmut Luetkepohl, 2008. "Stock Prices and Economic Fluctuations: A Markov Switching Structural Vector Autoregressive Analysis," Economics Working Papers ECO2008/29, European University Institute.
- Marcelo C. Medeiros & Alvaro Veiga, 2003.
"Diagnostic Checking in a Flexible Nonlinear Time Series Model,"
Journal of Time Series Analysis,
Wiley Blackwell, vol. 24(4), pages 461-482, 07.
- Medeiros, Marcelo & Veiga, Alvaro, 2000. "Diagnostic Checking in a Flexible Nonlinear Time Series Model," Working Paper Series in Economics and Finance 386, Stockholm School of Economics, revised 15 Jan 2001.
- Lanne, Markku & Lütkepohl, Helmut & Maciejowska, Katarzyna, 2010.
"Structural vector autoregressions with Markov switching,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 34(2), pages 121-131, February.
- Markku Lanne & Helmut Luetkepohl & Katarzyna Maciejowska, 2009. "Structural Vector Autoregressions with Markov Switching," Economics Working Papers ECO2009/06, European University Institute.
- Godfrey, Leslie G, 1978. "Testing against General Autoregressive and Moving Average Error Models When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1293-1301, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.