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Bootstrapping Smooth Functions of Slope Parameters and Innovation Variances in VAR (∞) Models

  • Atsushi Inoue

    (North Carolina State University, U.S.A.)

  • Lutz Kilian

    (University of Michigan, U.S.A., and CEPR, U.K.)

It is common to conduct bootstrap inference in vector autoregressive (VAR) models based on the assumption that the underlying data-generating process is of finite-lag order. This assumption is implausible in practice. We establish the asymptotic validity of the residual-based bootstrap method for smooth functions of VAR slope parameters and innovation variances under the alternative assumption that a sequence of finite-lag order VAR models is fitted to data generated by a VAR process of possibly infinite order. This class of statistics includes measures of predictability and orthogonalized impulse responses and variance decompositions. Our approach provides an alternative to the use of the asymptotic normal approximation and can be used even in the absence of closed-form solutions for the variance of the estimator. We illustrate the practical relevance of our findings for applied work, including the evaluation of macroeconomic models. Copyright Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 43 (2002)
Issue (Month): 2 (May)
Pages: 309-332

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Handle: RePEc:ier:iecrev:v:43:y:2002:i:2:p:309-332
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