38 Pages Posted: 23 Aug 2000
Date Written: June 2000
This paper analyzes the performance of heteroskedasticity-and-autocorrelation-consistent (HAC) covariance matrix estimators in which the residuals are prewhitened using a vector autoregressive (VAR) filter. We highlight the pitfalls of using an arbitrarily fixed lag order for the VAR filter, and we demonstrate the benefits of using a model selection criterion (either AIC or BIC) to determine its lag structure. Furthermore, once data-dependent VAR prewhitening has been utilized, we find negligible or even counter-productive effects of applying standard kernel-based methods to the prewhitened residuals; that is, the performance of the prewhitened kernel estimator is virtually indistinguishable from that of the VARHAC estimator.
Suggested Citation: Suggested Citation
den Haan, Wouter J. and Levin, Andrew T., Robust Covariance Matrix Estimation with Data-Dependent VAR Prewhitening Order (June 2000). NBER Working Paper No. t0255. Available at SSRN: https://ssrn.com/abstract=235687