The finite-sample effects of VAR dimensions on OLS bias, OLS variance, and minimum MSE estimators

Journal article | Zeitschriftenartikel

Vector autoregressions (VARs) are important tools in time series analysis. However, relatively little is known about the finite-sample behaviour of parameter estimators. We address this issue, by investigating ordinary least squares (OLS) estimators given a data generating process that is a purely nonstationary first-order VAR. Specifically, we use Monte Carlo simulation and numerical optimisation to derive response surfaces for OLS bias and variance, in terms of VAR dimensions, given correct specification and several types of over-parameterisation of the model: we include a constant, and a constant and trend, and introduce excess lags. We then examine the correction factors that are required for the least squares estimator to attain the minimum mean squared error (MSE). Our results improve and extend one of the main finite-sample multivariate analytical bias results of Abadir, Hadri and Tzavalis [Abadir, K.M., Hadri, K., Tzavalis, E., 1999. The influence of VAR dimensions on estimator biases. Econometrica 67, 163–181], generalise the univariate variance and MSE findings of Abadir [Abadir, K.M., 1995. Unbiased estimation as a solution to testing for random walks. Economics Letters 47, 263–268] to the multivariate setting, and complement various asymptotic studies.

Object Details

• Extent: Seite(n): 124-130
• Language: Englisch
• Notes: Status: Postprint; begutachtet (peer reviewed)

References and Relationships

• Bibliographic citation: Journal of Econometrics, 148(2)

Classification and Topics

• Subject: Wirtschaft ; Wirtschaftsstatistik, Ökonometrie, Wirtschaftsinformatik

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lawford, Steve ; Stamatogiannis, Michalis P.
• Event: Veröffentlichung
• (where): Niederlande
• (when): 2009

Further information

• DOI: https://doi.org/10.1016/j.jeconom.2008.10.004
• URN: urn:nbn:de:0168-ssoar-215759
• Rights: GESIS - Leibniz-Institut für Sozialwissenschaften. Bibliothek Köln
• Last update: 21.06.2024, 4:27 PM CEST