Dynamic Modeling Under Linear-Exponential Loss

19 Pages Posted: 21 Nov 2006 Last revised: 17 Sep 2008

Date Written: April 17, 2008

Abstract

We develop a methodology of parametric modeling of time series dynamics when the underlying loss function is linear-exponential (Linex). We propose to directly model the dynamics of the conditional expectation that determines the optimal predictor. The procedure hinges on the exponential quasi maximum likelihood interpretation of the Linex loss and nicely fits the multiple error modeling framework. Many conclusions relating to estimation, inference and forecasting follow from results already available in the econometric literature. The methodology is illustrated using data on United States GNP growth and Treasury bill returns.

Keywords: Linear-exponential loss, optimal predictor, quasi maximum likelihood, multiple error model, autoregressive conditional durations

JEL Classification: C22, C51, C52

Suggested Citation

Anatolyev, Stanislav, Dynamic Modeling Under Linear-Exponential Loss (April 17, 2008). Economic Modelling, Forthcoming, Available at SSRN: https://ssrn.com/abstract=946409 or http://dx.doi.org/10.2139/ssrn.946409

Stanislav Anatolyev (Contact Author)

New Economic School ( email )

Skolkovskoe shosse, 45
Moscow, 121353
Russia

CERGE-EI ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

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