Robust Covariance Matrix Estimation with Data-Dependent VAR Prewhitening Order / Wouter J. den Haan, Andrew T. Levin.

Format:

Book

Author/Creator:

den Haan, Wouter J.

Contributor:

National Bureau of Economic Research.

Levin, Andrew T.

Series:

Technical Working Paper Series (National Bureau of Economic Research) no. t0255.

NBER technical working paper series no. t0255

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2000.

Summary:

This paper analyzes the performance of heteroskedasticity-and-autocorrelation-consistent (HAC) covariance matrix estimators in which the residuals are prewhitened using a vector autoregressive (VAR) filter. We highlight the pitfalls of using an arbitrarily fixed lag order for the VAR filter, and we demonstrate the benefits of using a model selection criterion (either AIC or BIC) to determine its lag structure. Furthermore, once data-dependent VAR prewhitening has been utilized, we find negligible or even counter-productive effects of applying standard kernel-based methods to the prewhitened residuals; that is, the performance of the prewhitened kernel estimator is virtually indistinguishable from that of the VARHAC estimator.

Notes:

Print version record

June 2000.