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Improved HAC Covariance Matrix Estimation Based on Forecast Errors

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Abstract

We propose computing HAC covariance matrix estimators based on one-stepahead forecasting errors. It is shown that this estimator is consistent and has smaller bias than other HAC estimators. Moreover, the tests that rely on this estimator have more accurate sizes without sacrificing its power.

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Bibliographic Info

Paper provided by Institute of Economics, Academia Sinica, Taipei, Taiwan in its series IEAS Working Paper : academic research with number 06-A008.

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Length: 8 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:sin:wpaper:06-a008

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Web page: http://www.econ.sinica.edu.tw/index.php?foreLang=en
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Keywords: forecast error; HAC estimator; kernel estimator; recursive residual; robust test;

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  1. Jushan Bai, 2003. "Testing Parametric Conditional Distributions of Dynamic Models," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 531-549, August.
  2. Andrews, Donald W K & Monahan, J Christopher, 1992. "An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," Econometrica, Econometric Society, Econometric Society, vol. 60(4), pages 953-66, July.
  3. de Jong, Robert M., 2000. "A Strong Consistency Proof For Heteroskedasticity And Autocorrelation Consistent Covariance Matrix Estimators," Econometric Theory, Cambridge University Press, vol. 16(02), pages 262-268, April.
  4. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, Econometric Society, vol. 59(3), pages 817-58, May.
  5. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  6. Newey, Whitney K & West, Kenneth D, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(4), pages 631-53, October.
  7. Nicholas M. Kiefer & Timothy J. Vogelsang & Helle Bunzel, 2000. "Simple Robust Testing of Regression Hypotheses," Econometrica, Econometric Society, Econometric Society, vol. 68(3), pages 695-714, May.
  8. Hansen, Bruce E, 1992. "Consistent Covariance Matrix Estimation for Dependent Heterogeneous Processes," Econometrica, Econometric Society, Econometric Society, vol. 60(4), pages 967-72, July.
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