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A tobit model with garch errors

  • Gabriele Fiorentini

    ()

    (Universidad de Alicante)

  • Giorgio Calzolari

    (University of Florence)

In the context of time series regression, we extend the standard Tobitmodel to allow for the possibility of conditional heteroskedastic error processes of the GARCH type.We discuss the likelihood function of the Tobit model in the presence of conditionally heteroskedastic errors.Expressing the exact likelihood function turns out to be infeasible, and we propose anapproximation by treating the model as being conditionally Gaussian. The performance of theestimator is investigated by means of Monte Carlo simulations. We find that, when the errorterms follow a GARCH process, the proposed estimator considerably outperforms the standardTobit quasi maximum likelihood estimator. The efficency loss due to the approximationof the likelihood is finally evaluated.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-1997-13.pdf
File Function: Fisrt version / Primera version, 1997
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 1997-13.

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Length: 19 pages
Date of creation: Apr 1997
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:1997-13
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  1. Fiorentini,G. & Calzolari,G. & Panattoni,L., 1995. "Analytic Derivatives and the Computation of Garch Estimates," Papers 9519, Centro de Estudios Monetarios Y Financieros-.
  2. Harvey, Andrew & Ruiz, Esther & Sentana, Enrique, 1992. "Unobserved component time series models with Arch disturbances," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 129-157.
  3. Garcia, E.G., 1994. "A Devaluations Model for the EMS," Papers 9416, Centro de Estudios Monetarios Y Financieros-.
  4. Giuseppe Bertola & Lars E.O. Svensson, 1991. "Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models," NBER Working Papers 3576, National Bureau of Economic Research, Inc.
  5. Edin, P.A. & Vredin, A., 1991. "Devaluation Risk in Target Zones: Evidence from the Nordic Countries," Papers 1991g, Uppsala - Working Paper Series.
  6. Pesaran, M.H. & Ruge-Murcia, F.J., 1995. "A Discrete-Time Version of Target Zone Models with Jumps," Cahiers de recherche 9530, Universite de Montreal, Departement de sciences economiques.
  7. Pesaran, M Hashem & Samiei, Hossein, 1992. "An Analysis of the Determination of Deutsche Mark/French Franc Exchange Rate in a Discrete-Time Target-Zone Model," Economic Journal, Royal Economic Society, vol. 102(411), pages 388-401, March.
  8. Calzolari, Giorgio, 2012. "Econometric notes," MPRA Paper 36765, University Library of Munich, Germany.
  9. Hurd, Michael, 1979. "Estimation in truncated samples when there is heteroscedasticity," Journal of Econometrics, Elsevier, vol. 11(2-3), pages 247-258.
  10. Pesaran, M.H. & Samiei, H., 1990. "Estimating Limited-Dependent Rational Expectations Models," Papers 18, California Los Angeles - Applied Econometrics.
  11. Gourieroux, C. & Monfort, A. & Renault, E., 1992. "Indirect Inference," Papers 92.279, Toulouse - GREMAQ.
  12. Calzolari, Giorgio & Fiorentini, Gabriele, 1993. "Alternative covariance estimators of the standard Tobit model," Economics Letters, Elsevier, vol. 42(1), pages 5-13.
  13. Pesaran, M. Hashem & Samiei, Hossein, 1992. "Estimating limited-dependent rational expectations models with an application to exchange rate determination in a target zone," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 141-163.
  14. Hashem Pesaran, M. & Ruge-Murcia, Francisco J., 1996. "Limited-dependent rational expectations models with stochastic thresholds," Economics Letters, Elsevier, vol. 51(3), pages 267-276, June.
  15. Pesaran, M. Hashem & Samiei, Hossein, 1995. "Limited-dependent rational expectations models with future expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1325-1353, November.
  16. Arabmazar, Abbas & Schmidt, Peter, 1981. "Further evidence on the robustness of the Tobit estimator to heteroskedasticity," Journal of Econometrics, Elsevier, vol. 17(2), pages 253-258, November.
  17. Amemiya, Takeshi, 1984. "Tobit models: A survey," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 3-61.
  18. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  19. Arabmazar, Abbas & Schmidt, Peter, 1982. "An Investigation of the Robustness of the Tobit Estimator to Non-Normality," Econometrica, Econometric Society, vol. 50(4), pages 1055-63, July.
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