On the Finite Sample Accuracy of Nonparametric Resampling Algorithms for Economic Time Series

Board of Governors of the Federal Reserve System, Finance and Economics Discussion Series Paper No. 99-4

37 Pages Posted: 2 Apr 1999

See all articles by Jeremy Berkowitz

Jeremy Berkowitz

University of Houston - Department of Finance

Ionel Birgean

affiliation not provided to SSRN

Lutz Kilian

University of Michigan at Ann Arbor - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: January 24, 1999

Abstract

In recent years, there has been increasing interest in nonparametric bootstrap inference for economic time series. Nonparametric resampling techniques help protect against overly optimistic inference in time series models of unknown structure. They are particularly useful for evaluating the fit of dynamic economic models in terms of their spectra, impulse responses, and related statistics, because they do not require a correctly specified economic model. Notwithstanding the potential advantages of nonparametric bootstrap methods, their reliability in small samples is questionable. In this paper, we provide a benchmark for the relative accuracy of several nonparametric resampling algorithms based on ARMA representations of four macroeconomic time series. For each algorithm, we evaluate the effective coverage accuracy of impulse response and spectral density bootstrap confidence intervals for standard sample sizes. We find that the autoregressive sieve approach based on the encompassing model is most accurate. However, care must be exercised in selecting the lag order of the autoregressive approximation.

JEL Classification: C13, C22

Suggested Citation

Berkowitz, Jeremy and Birgean, Ionel and Kilian, Lutz, On the Finite Sample Accuracy of Nonparametric Resampling Algorithms for Economic Time Series (January 24, 1999). Board of Governors of the Federal Reserve System, Finance and Economics Discussion Series Paper No. 99-4. Available at SSRN: https://ssrn.com/abstract=155181 or http://dx.doi.org/10.2139/ssrn.155181

Jeremy Berkowitz (Contact Author)

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States

Ionel Birgean

affiliation not provided to SSRN

No Address Available

Lutz Kilian

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
734-764-2320 (Phone)
734-764-2769 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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