Bootstrapping Autoregressions with Conditional Heteroskedasticity of Unknown Form

Silvia Goncalves () and Lutz Kilian

Cahiers de recherche from Centre interuniversitaire de recherche en économie quantitative, CIREQ

Abstract: Conditional heteroskedasticity is an important feature of many macroeconomic and financial time series. Standard residual-based bootstrap procedures for dynamic regression models treat the regression error as i.i.d. These procedures are invalid in the presence of conditional heteroskedasticity. We establish the asymptotic validity of three easy-to-implement alternative bootstrap proposals for stationary autoregressive processes with m.d.s. errors subject to possible conditional heteroskedasticity of unknown form. These proposals are the fixed-design wild bootstrap, the recursive-design wild bootstrap and the pairwise bootstrap. In a simulation study, all three procedures tend to be more accurate in small samples than the conventional large-sample approximation based on robust standard errors. In contrast, standard residual-based bootstrap methods for models with i.i.d. errors may be very inaccurate if the i.i.d. assumption is violated. We conclude that in many empirical applications the proposed robust bootstrap procedures should routinely replace conventional bootstrap procedures for autoregressions based on the i.i.d. error assumption.

Keywords: Conditional heteroskedasticity; wild bootstrap; pairwise bootstrap (search for similar items in EconPapers)
Pages: 37 pages
Date: 2003
New Economics Papers: this item is included in nep-ets and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Related works:
Journal Article: Bootstrapping autoregressions with conditional heteroskedasticity of unknown form (2004)
Working Paper: Bootstrapping Autoregressions with Conditional Heteroskedasticity of Unknown Form (2003)
Working Paper: Bootstrapping Autoregressions with Conditional Heteroskedasticity of Unknown Form (2003)
Working Paper: Bootstrapping autoregressions with conditional heteroskedasticity of unknown form (2002)
Working Paper: Bootstrapping Autoregressions with Conditional Heteroskedasticity of Unknown Form (2002)
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