Asymptotic Confidence Intervals for Impulse Responses of Near-Integrated Processes: An Application to Purchasing Power Parity
Many economic time series are charecterized by high persistence which typically requires nonstandard limit theory for inference. This paper proposes a new method for constructing confidence intervals for the impulse response functions of nearly nonstationary processes. The method is based on inverting the acceptance region of the LR statistic evaluated under a sequence of null hypotheses of possible values for the impulse response. Under the null, the LR statistic can be represented as a ratio of functionals of Ornstein-Uhlenbeck processes and its asymptotic quantiles can be simulated easily. The method is extended to multivariate processes with near-unit roots. The empirical results for the real exchange rates show some support for 3-5 year half-lives reported by Rogoff (1996).
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|Date of creation:||01 Apr 2001|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.econometricsociety.org/conference/SCE2001/SCE2001.html|
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