Structural change and estimated persistence in the GARCH(1,1)-model
It has long been known that the estimated persistence parameter in the GARCH(1,1) - model is biased upwards when the parameters of the model are not constant throughout the sample. The present paper explains the mechanics of this behavior for a particular class of estimates of the model parameters and for a particular type of structural change. It shows for any given sample size that the estimated persistence must tend to one in probability if the structural change is ignored and large enough.
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|Date of creation:|
|Date of revision:||May 2006|
|Publication status:||Published in Economics Letters, October 2007, pages 17-23|
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