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Vector Multiplicative Error Models: Representation and Inference

Fabrizio Cipollini (), Robert Engle and Giampiero Gallo ()

Econometrics Working Papers Archive from Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti"

Abstract: The Multiplicative Error Model introduced by Engle (2002) for positive valued processes is specified as the product of a (conditionally autoregressive) scale factor and an innovation process with positive support. In this paper we propose a multivariate extension of such a model, by taking into consideration the possibility that the vector innovation process be contemporaneously correlated. The estimation procedure is hindered by the lack of probability density functions for multivariate positive valued random variables. We suggest the use of copula functions and of estimating equations to jointly estimate the parameters of the scale factors and of the correlations of the innovation processes. Empirical applications on volatility indicators are used to illustrate the gains over the equation by equation procedure.

New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2006-10
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Working Paper: Vector Multiplicative Error Models: Representation and Inference (2006) Downloads
Working Paper: Vector Multiplicative Error Models: Representation and Inference (2006) Downloads
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