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Bootstrapping autoregressions with conditional heteroskedasticity of unknown form

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  • Gonçalves, Sí­lvia
  • Kilian, Lutz

Abstract

Conditional heteroskedasticity is an important feature of many macroeconomic and financial time series. Standard residual-based bootstrap procedures for dynamic regression models treat the regression eroor as i.i.d. These procedures are invalid in the presence of conditional heteroskedasticity. We establish the asymptotic validity of three easy-to-implement alternative bootstrap proposals for stationary autoregressive processes with m.d.s. errors subject to possible conditional heteroskedasticity of unknown form. These proposals are the fixed-design wild bootstrap, the recursive design wild bootstrap and the pairwise bootstrap. In a simulation study all three procedures tend to be more accurate in small samples than the conventional large-sample approximation based on robust standard errors. In contrast, standard residual-based bootstrap methods for models with i.i.d. errors may be very inaccurate if the i.i.d. assumption is violated. We conclude that in many empirical applications the proposed robust bootstrap procedures should routinely replace conventional bootstrap procedures based on the i.i.d. error assumption. JEL Classification: C15, C22, C52

Suggested Citation

  • Gonçalves, Sí­lvia & Kilian, Lutz, 2002. "Bootstrapping autoregressions with conditional heteroskedasticity of unknown form," Working Paper Series 196, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2002196
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    More about this item

    Keywords

    GARCH; pairwise bootstrap; robust inference; stochastic volatility; wild bootstrap;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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