A Two-Stage Plug-In Bandwidth Selection and Its Implementation for Covariance Estimation
AbstractThe two most popular bandwidth choice rules for kernel HAC estimation have been proposed by Andrews (1991) and Newey and West (1994). This paper suggests an alternative approach that estimates an unknown quantity in the optimal bandwidth for the HAC estimator (called normalized curvature) using a general class of kernels, and derives the optimal bandwidth that minimizes the asymptotic mean squared error of the estimator of normalized curvature. It is shown that the optimal bandwidth for the kernel-smoothed normalized curvature estimator should diverge at a slower rate than that of the HAC estimator using the same kernel. An implementation method of the optimal bandwidth for the HAC estimator, which is analogous to the one for probability density estimation by Sheather and Jones (1991), is also developed. The finite sample performance of the new bandwidth choice rule is assessed through Monte Carlo simulations.
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Bibliographic InfoPaper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-431.
Length: 33 pages
Date of creation: Jun 2006
Date of revision:
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- NEP-ALL-2006-08-05 (All new papers)
- NEP-ECM-2006-08-05 (Econometrics)
- NEP-ETS-2006-08-05 (Econometric Time Series)
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