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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
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:1997-13
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  1. M. Hashem Pesaran & Hossein Samiei, 1991. "Estimating Limited-Dependent Rational Expectations Models: With an Application to Exchange Rate Determination in a Target Zone," UCLA Economics Working Papers 612, UCLA Department of Economics.
  2. Arabmazar, Abbas & Schmidt, Peter, 1982. "An Investigation of the Robustness of the Tobit Estimator to Non-Normality," Econometrica, Econometric Society, vol. 50(4), pages 1055-1063, July.
  3. Gourieroux, C & Monfort, A & Renault, E, 1993. "Indirect Inference," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S85-118, Suppl. De.
  4. Giuseppe Bertola & Lars E. O. Svensson, 1993. "Stochastic Devaluation Risk and the Empirical Fit of Target-Zone Models," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 689-712.
  5. Amemiya, Takeshi, 1984. "Tobit models: A survey," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 3-61.
  6. Pesaran, M.H. & Samiei, H., 1991. "An Analysis of the determination of Dutsche Mark/French Franc Exchange rate in a Discrete-Time Target-Zone Model," Papers 38, California Los Angeles - Applied Econometrics.
  7. Pesaran, M.H. & Ruge-Murcia, F.J., 1995. "A Discrete-Time Version of Target Zone Models with Jumps," Cahiers de recherche 9530, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  8. 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.
  9. Fiorentini,G. & Calzolari,G. & Panattoni,L., 1995. "Analytic Derivatives and the Computation of Garch Estimates," Papers 9519, Centro de Estudios Monetarios Y Financieros-.
  10. Edin, P.A. & Vredin, A., 1991. "Devaluation Risk in Target Zones: Evidence from the Nordic Countries," Papers 1991g, Uppsala - Working Paper Series.
  11. Pesaran, M.H. & Murcia, F.J., 1993. "Limited-Dependent Rational Expectations Models with Stochastic Thresholds," Cambridge Working Papers in Economics 9318, Faculty of Economics, University of Cambridge.
  12. 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.
  13. Garcia, E.G., 1994. "A Devaluations Model for the EMS," Papers 9416, Centro de Estudios Monetarios Y Financieros-.
  14. 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.
  15. Calzolari, Giorgio & Fiorentini, Gabriele, 1993. "Alternative covariance estimators of the standard Tobit model," Economics Letters, Elsevier, vol. 42(1), pages 5-13.
  16. Calzolari, Giorgio, 2012. "Econometric notes," MPRA Paper 36765, University Library of Munich, Germany.
  17. Hurd, Michael, 1979. "Estimation in truncated samples when there is heteroscedasticity," Journal of Econometrics, Elsevier, vol. 11(2-3), pages 247-258.
  18. Pesaran, M.H. & Samiei, H., 1990. "Estimating Limited-Dependent Rational Expectations Models," Papers 18, California Los Angeles - Applied Econometrics.
  19. 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.
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