Model-based asymptotic inference on the effect of infrequent large shocks on cointegrated variables

Iliyan Georgiev

Journal of Econometrics, 2010, vol. 158, issue 1, 37-50

Abstract: Quasi-maximum-likelihood (QML) estimation of a model combining cointegration in the conditional mean and rare large shocks (outliers) with a factor structure in the innovations is studied. The goal is not only to robustify inference on the conditional-mean parameters, but also to find regularities and conduct inference on the instantaneous and long-run effect of the large shocks. Given the cointegration rank and the factor order, [chi]2 asymptotic inference is obtained for the cointegration vectors, the short-run parameters, and the direction of each column of both the factor loading matrix and the matrix of long-run impacts of the large shocks. Large shocks, whose location is assumed unknown a priori, can be detected and classified consistently into the factor components.

Keywords: Cointegration; Vector; autoregression; Rare; events; Impulse; response (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:158:y:2010:i:1:p:37-50

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