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Structural change and estimated persistence in the GARCH(1,1)-model

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Author Info
Prof. Dr. Walter Krämer () (Faculty of Statistics, Dortmund University of Technology)
Baudouin Tameze Azamo () (Faculty of Statistics, Dortmund University of Technology)

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Abstract

It has long been known that the estimated persistence parameter in the GARCH(1,1) - model is biased upwards when the parameters of the model are not constant throughout the sample. The present paper explains the mechanics of this behavior for a particular class of estimates of the model parameters and for a particular type of structural change. It shows for any given sample size that the estimated persistence must tend to one in probability if the structural change is ignored and large enough.

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Publisher Info
Paper provided by Business and Social Statistics Department, Technische Universität Dortmund in its series Working Papers with number 5.

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Length: 16 pages
Date of creation:
Date of revision: May 2006
Publication status: Published in Economics Letters, October 2007, pages 17-23
Handle: RePEc:dor:wpaper:5

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Related research
Keywords: long memory; GARCH; structural change;

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  1. WenShwo Fang & Stephen M. Miller & ChunShen Lee, 2008. "The Great Moderation Flattens Fat Tails: Disappearing Leptokurtosis," Working papers 2008-48, University of Connecticut, Department of Economics. [Downloadable!]
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  2. Giorgio Canarella & WenShwo Fang & Stephen M. Miller & Stephen K. Pollard, 2008. "Is the Great Moderation Ending? UK and US Evidence," Working Papers 0801, University of Nevada, Las Vegas , Department of Economics. [Downloadable!]
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  3. WenShwo Fang & Stephen M. Miller, 2008. "Modeling the Volatility of Real GDP Growth: The Case of Japan Revisited," Working papers 2008-47, University of Connecticut, Department of Economics. [Downloadable!]
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  4. Walter Kraemer, 2008. "Long Memory with Markov-Switching GARCH," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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