Long Run Variance Estimation Using Steep Origin Kernels Without Truncation
AbstractA new class of kernel estimates is proposed for long run variance (LRV) and heteroskedastic autocorrelation consistent (HAC) estimation. The kernels are called steep origin kernels and are related to a class of sharp origin kernels explored by the authors (2003) in other work. They are constructed by exponentiating a mother kernel (a conventional lag kernel that is smooth at the origin) and they can be used without truncation or bandwidth parameters. When the exponent is passed to infinity with the sample size, these kernels produce consistent LRV/HAC estimates. The new estimates are shown to have limit normal distributions, and formulae for the asymptotic bias and variance are derived. With steep origin kernel estimation, bandwidth selection is replaced by exponent selection and data-based selection is possible. Rules for exponent selection based on minimum mean squared error (MSE)\ criteria are developed. Optimal rates for steep origin kernels that are based on exponentiating quadratic kernels are shown to be faster than those based on exponentiating the Bartlett kernel, which produces the sharp origin kernel. It is further shown that, unlike conventional kernel estimation where an optimal choice of kernel is possible in terms of MSE\ criteria (Priestley, 1962; Andrews, 1991), steep origin kernels are asymptotically MSE equivalent, so that choice of mother kernel does not matter asymptotically. The approach is extended to spectral estimation at frequencies \omega \neq 0. Some simulation evidence is reported detailing the finite sample performance of steep kernel methods in LRV/HAC estimation and robust regression testing in comparison with sharp kernel and conventional (truncated) kernel methods.
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Bibliographic InfoPaper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm427.
Date of creation: 28 Jul 2004
Date of revision:
Exponentiated kernel; lag kernel; long run variance; optimal exponent; spectral window; spectrum;
Other versions of this item:
- Peter C.B. Phillips & Yixiao Sun & Sainan Jin, 2003. "Long Run Variance Estimation Using Steep Origin Kernels without Truncation," Cowles Foundation Discussion Papers 1437, Cowles Foundation for Research in Economics, Yale University.
- 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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- Peter C.B. Phillips & Yixiao Sun & Sainan Jin, 2005. "Improved HAR Inference," Cowles Foundation Discussion Papers 1513, Cowles Foundation for Research in Economics, Yale University.
- Neil Shephard & Ole E. Barndorff-Nielsen, 2006.
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