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Articles 31 - 47 of 47
Full-Text Articles in Economics
Applications Of Subsampling, Hybrid, And Size-Correction Methods, Donald W.K. Andrews, Patrik Guggenberger
Applications Of Subsampling, Hybrid, And Size-Correction Methods, Donald W.K. Andrews, Patrik Guggenberger
Cowles Foundation Discussion Papers
This paper analyzes the properties of subsampling, hybrid subsampling, and size-correction methods in two non-regular models. The latter two procedures are introduced in Andrews and Guggenberger (2005b). The models are non-regular in the sense that the test statistics of interest exhibit a discontinuity in their limit distribution as a function of a parameter in the model. The first model is a linear instrumental variables (IV) model with possibly weak IVs estimated using two-stage least squares (2SLS). In this case, the discontinuity occurs when the concentration parameter is zero. The second model is a linear regression model in which the parameter …
The Limit Of Finite-Sample Size And A Problem With Subsampling, Donald W.K. Andrews, Patrik Guggenberger
The Limit Of Finite-Sample Size And A Problem With Subsampling, Donald W.K. Andrews, Patrik Guggenberger
Cowles Foundation Discussion Papers
This paper considers inference based on a test statistic that has a limit distribution that is discontinuous in a nuisance parameter or the parameter of interest. The paper shows that subsample, b n < n bootstrap, and standard fixed critical value tests based on such a test statistic often have asymptotic size — defined as the limit of the finite-sample size — that is greater than the nominal level of the tests. We determine precisely the asymptotic size of such tests under a general set of high-level conditions that are relatively easy to verify. The high-level conditions are verified in several examples. Analogous results are established for confidence intervals. The results apply to tests and confidence intervals (i) when a parameter may be near a boundary, (ii) for parameters defined by moment inequalities, (iii) based on super-efficient or shrinkage estimators, (iv) based on post-model selection estimators, (v) in scalar and vector autoregressive models with roots that may be close to unity, (vi) in models with lack of identification at some point(s) in the parameter space, such as models with weak instruments and threshold autoregressive models, (vii) in predictive regression models with nearly-integrated regressors, (viii) for non-differentiable functions of parameters, and (ix) for differentiable functions of parameters that have zero first-order derivative. Examples (i)-(iii) are treated in this paper. Examples (i) and (iv)-(vi) are treated in sequels to this paper, Andrews and Guggenberger (2005a, b). In models with unidentified parameters that are bounded by moment inequalities, i.e., example (ii), certain subsample confidence regions are shown to have asymptotic size equal to their nominal level. In all other examples listed above, some types of subsample procedures do not have asymptotic size equal to their nominal level.
Asymptotics For Stationary Very Nearly Unit Root Processes, Donald W.K. Andrews, Patrik Guggenberger
Asymptotics For Stationary Very Nearly Unit Root Processes, Donald W.K. Andrews, Patrik Guggenberger
Cowles Foundation Discussion Papers
This paper considers a mean zero stationary first-order autoregressive (AR) model. It is shown that the least squares estimator and t statistic have Cauchy and standard normal asymptotic distributions, respectively, when the AR parameter ρ n is very near to one in the sense that 1 – ρ n = ( n –1 ).
The Limit Of Finite-Sample Size And A Problem With Subsampling, Donald W.K. Andrews, Patrik Guggenberger
The Limit Of Finite-Sample Size And A Problem With Subsampling, Donald W.K. Andrews, Patrik Guggenberger
Cowles Foundation Discussion Papers
This paper considers inference based on a test statistic that has a limit distribution that is discontinuous in a nuisance parameter or the parameter of interest. The paper shows that subsample, b n < n bootstrap, and standard fixed critical value tests based on such a test statistic often have asymptotic size — defined as the limit of the finite-sample size — that is greater than the nominal level of the tests. We determine precisely the asymptotic size of such tests under a general set of high-level conditions that are relatively easy to verify. The high-level conditions are verified in several examples. Analogous results are established for confidence intervals. The results apply to tests and confidence intervals (i) when a parameter may be near a boundary, (ii) for parameters defined by moment inequalities, (iii) based on super-efficient or shrinkage estimators, (iv) based on post-model selection estimators, (v) in scalar and vector autoregressive models with roots that may be close to unity, (vi) in models with lack of identification at some point(s) in the parameter space, such as models with weak instruments and threshold autoregressive models, (vii) in predictive regression models with nearly-integrated regressors, (viii) for non-differentiable functions of parameters, and (ix) for differentiable functions of parameters that have zero first-order derivative. Examples (i)-(iii) are treated in this paper. Examples (i) and (iv)-(vi) are treated in sequels to this paper, Andrews and Guggenberger (2005a, b). In models with unidentified parameters that are bounded by moment inequalities, i.e., example (ii), certain subsample confidence regions are shown to have asymptotic size equal to their nominal level. In all other examples listed above, some types of subsample procedures do not have asymptotic size equal to their nominal level.
Hybrid And Size-Corrected Subsample Methods, Donald W.K. Andrews, Patrik Guggenberger
Hybrid And Size-Corrected Subsample Methods, Donald W.K. Andrews, Patrik Guggenberger
Cowles Foundation Discussion Papers
This paper considers the problem of constructing tests and confidence intervals (CIs) that have correct asymptotic size in a broad class of non-regular models. The models considered are non-regular in the sense that standard test statistics have asymptotic distributions that are discontinuous in some parameters. It is shown in Andrews and Guggenberger (2005a) that standard fixed critical value, subsample, and b < n bootstrap methods often have incorrect size in such models. This paper introduces general methods of constructing tests and CIs that have correct size. First, procedures are introduced that are a hybrid of subsample and fixed critical value methods. The resulting hybrid procedures are easy to compute and have correct size asymptotically in many, but not all, cases of interest. Second, the paper introduces size-correction and “plug-in” size-correction methods for fixed critical value, subsample, and hybrid tests. The paper also introduces finite-sample adjustments to the asymptotic results of Andrews and Guggenberger (2005a) for subsample and hybrid methods and employs these adjustments in size-correction. The paper discusses several examples in detail. The examples are: (i) tests when a nuisance parameter may be near a boundary, (ii) CIs in an autoregressive model with a root that may be close to unity, and (iii) tests and CIs based on a post-conservative model selection estimator.
Evaluating Inflation Targeting Using A Macroeconometric Model, Ray C. Fair
Evaluating Inflation Targeting Using A Macroeconometric Model, Ray C. Fair
Ray C Fair
This paper uses a structurally estimated macroeconometric model, denoted the MC model, to evaluate inflation targeting in the United States. Various interest rate rules are tried with differing weights on inflation and output, and various optimal control problems are solved using differing weights on inflation and output targets. Price-level targeting is also considered. The results show that 1) there are output costs to inflation targeting, especially for price shocks, 2) price-level targeting is dominated by inflation targeting, 3) the estimated interest rate rule of the Fed (in Table 4) is consistent with the Fed placing equal weights on inflation and …
Presidential And Congressional Vote-Share Equations, Ray C. Fair
Presidential And Congressional Vote-Share Equations, Ray C. Fair
Ray C Fair
Three vote-share equations are estimated and analyzed in this paper, one for presidential elections, one for on-term House elections, and one for mid-term House elections. The sample period is 1916--2006. Considering the three equations together allows one to test whether the same economic variables affect each and to examine various serial correlation and coattail possibilities. The resulting three equation model can then be analyzed dynamically, which is done in Section 4. The main conclusions are briefly: 1) There is strong evidence that the economy affects all three vote shares and in remarkably similar ways. 2) There is no evidence of …
Presidential And Congressional Vote-Share Equations, Ray C. Fair
Presidential And Congressional Vote-Share Equations, Ray C. Fair
Cowles Foundation Discussion Papers
Three vote-share equations are estimated and analyzed in this paper, one for presidential elections, one for on-term House elections, and one for mid-term House elections. The sample period is 1916-2006. Considering the three equations together allows one to test whether the same economic variables affect each and to examine various serial correlation and coattail possibilities. The resulting three equation model can then be analyzed dynamically, which is done in Section 4. The main conclusions are briefly: 1) There is strong evidence that the economy affects all three vote shares and in remarkably similar ways. 2) There is no evidence of …
Models: New Interpretations Of Old Results, Ricardo J. Caballero, Eduardo Engel
Models: New Interpretations Of Old Results, Ricardo J. Caballero, Eduardo Engel
Cowles Foundation Discussion Papers
What is the relation between infrequent price adjustment and the dynamic response of the aggregate price level to monetary shocks? The answer to this question ranges from a one-to-one link (Calvo, 1983) to no connection whatsoever (Caplin and Spulber, 1987). The purpose of this paper is to provide a unified framework to understand the mechanisms behind this wide range of results. In doing so, we propose new interpretations of key results in this area, which in turn suggest the kind of Ss model that is likely to generate substantial price rigidity. The first result we revisit is Caplin and Spulber’s …
Price Dynamics On A Stock Market With Asymmetric Information, Bernard De Meyer
Price Dynamics On A Stock Market With Asymmetric Information, Bernard De Meyer
Cowles Foundation Discussion Papers
The appearance of a Brownian term in the price dynamics on a stock market was interpreted in [De Meyer, Moussa-Saley (2003)] as a consequence of the informational asymmetries between agents. To take benefit of their private information without revealing it to fast, the informed agents have to introduce a noise on their actions, and all these noises introduced in the day after day transactions for strategic reasons will aggregate in a Brownian Motion. We prove in the present paper that this kind of argument leads not only to the appearance of the Brownian motion, but it also narrows the class …
Transition Modeling And Econometric Convergence Tests, Peter C.B. Phillips, Donggyu Sul
Transition Modeling And Econometric Convergence Tests, Peter C.B. Phillips, Donggyu Sul
Cowles Foundation Discussion Papers
A new panel data model is proposed to represent the behavior of economies in transition allowing for a wide range of possible time paths and individual heterogeneity. The model has both common and individual specific components and is formulated as a nonlinear time varying factor model. When applied to a micro panel, the decomposition provides flexibility in idiosyncratic behavior over time and across section, while retaining some commonality across the panel by means of an unknown common growth component. This commonality means that when the heterogeneous time varying idiosyncratic components converge over time to a constant, a form of panel …
Information Loss In Volatility Measurement With Flat Price Trading, Peter C.B. Phillips, Jun Yu
Information Loss In Volatility Measurement With Flat Price Trading, Peter C.B. Phillips, Jun Yu
Cowles Foundation Discussion Papers
A model of price determination is proposed that incorporates flat trading features into an efficient price process. The model involves the superposition of a Brownian semimartingale process for the efficient price and a Bernoulli process that determines the extent of flat price trading. A limit theory for the conventional realized volatility (RV) measure of integrated volatility is developed. The results show that RV is still consistent but has an inflated asymptotic variance that depends on the probability of flat trading. Estimated quarticity is similarly affected, so that both the feasible central limit theorem and the inferential framework suggested in Barndorff-Nielson …
An Ascending Auction For Interdependent Values: Uniqueness And Robustness To Strategic Uncertainty, Dirk Bergemann, Stephen Morris
An Ascending Auction For Interdependent Values: Uniqueness And Robustness To Strategic Uncertainty, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
We consider an single object auction environment with interdependent valuations and a generalized Vickrey–Clark–Groves allocation mechanism that allocates the object almost efficiently in a strict ex post equilibrium. If there is a significant amount of interdependence, there are multiple rationalizable outcomes of this direct mechanism and any other mechanism that allocates the object almost efficiently. This is true whether the agents know about each others’ payoff types or not. We consider an ascending price dynamic version of the generalized VCG mechanism. When there is complete information among the agents of their payoff types, we show that the almost efficient allocation …
Maximum Likelihood And Gaussian Estimation Of Continuous Time Models In Finance, Peter C.B. Phillips, Jun Yu
Maximum Likelihood And Gaussian Estimation Of Continuous Time Models In Finance, Peter C.B. Phillips, Jun Yu
Cowles Foundation Discussion Papers
This paper overviews maximum likelihood and Gaussian methods of estimating continuous time models used in finance. Since the exact likelihood can be constructed only in special cases, much attention has been devoted to the development of methods designed to approximate the likelihood. These approaches range from crude Euler-type approximations and higher order stochastic Taylor series expansions to more complex polynomial-based expansions and infill approximations to the likelihood based on a continuous time data record. The methods are discussed, their properties are outlined and their relative finite sample performance compared in a simulation experiment with the nonlinear CIR diffusion model, which …
Simulation-Based Estimation Of Contingent-Claims Prices, Peter C.B. Phillips, Jun Yu
Simulation-Based Estimation Of Contingent-Claims Prices, Peter C.B. Phillips, Jun Yu
Cowles Foundation Discussion Papers
A new methodology is proposed to estimate theoretical prices of financial contingent-claims whose values are dependent on some other underlying financial assets. In the literature the preferred choice of estimator is usually maximum likelihood (ML). ML has strong asymptotic justification but is not necessarily the best method in finite samples. The present paper proposes instead a simulation-based method that improves the finite sample performance of the ML estimator while maintaining its good asymptotic properties. The methods are implemented and evaluated here in the Black-Scholes option pricing model and in the Vasicek bond pricing model, but have wider applicability. Monte Carlo …
Gmm Estimation For Dynamic Panels With Fixed Effects And Strong Instruments At Unity, Chirok Han, Peter C.B. Phillips
Gmm Estimation For Dynamic Panels With Fixed Effects And Strong Instruments At Unity, Chirok Han, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper develops new estimation and inference procedures for dynamic panel data models with fixed effects and incidental trends. A simple consistent GMM estimation method is proposed that avoids the weak moment condition problem that is known to affect conventional GMM estimation when the autoregressive coefficient (rho) is near unity. In both panel and time series cases, the estimator has standard Gaussian asymptotics for all values of rho in (-1, 1] irrespective of how the composite cross section and time series sample sizes pass to infinity. Simulations reveal that the estimator has little bias even in very small samples. The …
Social Memory And Evidence From The Past, Luca Anderlini, Dino Gerardi, Roger Lagunoff
Social Memory And Evidence From The Past, Luca Anderlini, Dino Gerardi, Roger Lagunoff
Cowles Foundation Discussion Papers
Examples of repeated destructive behavior abound throughout the history of human societies. This paper examines the role of social memory — a society’s vicarious beliefs about the past — in creating and perpetuating destructive conflicts. We examine whether such behavior is consistent with the theory of rational strategic behavior. We analyze an infinite-horizon model in which two countries face off each period in an extended Prisoner’s Dilemma game in which an additional possibility of mutually destructive “all out war” yields catastrophic consequence for both sides. Each country is inhabited by a dynastic sequence of individuals who care about future individuals …