Half-Life Estimation based on the Bias-Corrected Bootstrap: A Highest Density Region Approach
AbstractThe half-life is defined as the number of periods required for the impulse response to a unit shock to a time series to dissipate by half. It is widely used as a measure of persistence, especially in international economics to quantify the degree of mean reversion of the deviation from an international parity condition. Several studies have proposed bias-corrected point and interval estimation methods. However, they have found that the confidence intervals are rather uninformative with their upper bound being either extremely large or infinite. This is largely due to the distribution of the half-life estimator being heavily skewed and multi-modal. In this paper, we propose a bias-corrected bootstrap procedure for the estimation of half-life, adopting the highest density region (HDR) approach to point and interval estimation. Our Monte Carlo simulation results reveal that the bias-corrected bootstrap HDR method provides an accurate point estimator, as well as tight confidence intervals with superior coverage properties to those of its alternatives. As an application, the proposed method is employed for half-life estimation of the real exchange rates of seventeen industrialized countries. The results indicate much faster rates of mean-reversion than those reported in previous studies.
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Bibliographic InfoPaper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 11/06.
Length: 35 pages
Date of creation: Jun 2006
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- Kim, Jae H. & Silvapulle, Param & Hyndman, Rob J., 2007. "Half-life estimation based on the bias-corrected bootstrap: A highest density region approach," Computational Statistics & Data Analysis, Elsevier, vol. 51(7), pages 3418-3432, April.
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-07-21 (All new papers)
- NEP-ECM-2006-07-21 (Econometrics)
- NEP-ETS-2006-07-21 (Econometric Time Series)
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