Asymptotic Confidence Intervals for Impulse Responses of Near-Integrated Processes: An Application to Purchasing Power Parity
AbstractMany economic time series are charecterized by high persistence which typically requires nonstandard limit theory for inference. This paper proposes a new method for constructing confidence intervals for the impulse response functions of nearly nonstationary processes. The method is based on inverting the acceptance region of the LR statistic evaluated under a sequence of null hypotheses of possible values for the impulse response. Under the null, the LR statistic can be represented as a ratio of functionals of Ornstein-Uhlenbeck processes and its asymptotic quantiles can be simulated easily. The method is extended to multivariate processes with near-unit roots. The empirical results for the real exchange rates show some support for 3-5 year half-lives reported by Rogoff (1996).
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2001 with number 136.
Date of creation: 01 Apr 2001
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impulse responses; near-integrated processes; local-to-unity asymptotics; purchasing power parity;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- 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
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- Rossi, Barbara, 2002.
"Confidence Intervals for Half-life Deviations from Purchasing Power Parity,"
02-08, Duke University, Department of Economics.
- Rossi, Barbara, 2005. "Confidence Intervals for Half-Life Deviations From Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 432-442, October.
- Sofiane H. Sekioua, 2004. "Real interest parity (RIP) over the 20th century: New evidence based on confidence intervals for the dominant root and half-lives of shocks," Money Macro and Finance (MMF) Research Group Conference 2004 91, Money Macro and Finance Research Group.
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