Journal
JOURNAL OF ECONOMETRICS
Volume 142, Issue 1, Pages 265-280Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.jeconom.2007.06.001
Keywords
adaptive estimation; autoregression; heterogeneity; nonstationary volatility; weighted regression
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Stable autoregressive models are considered with martingale differences errors scaled by an unknown nonparametric time-varying function generating heterogeneity. An important special case involves structural change in the error variance, but in most practical cases the pattern of variance change over time is unknown and may involve shifts at unknown discrete points in time, continuous evolution or combinations of the two. This paper develops kernel-based estimators of the residual variances and associated adaptive least squares (ALS) estimators of the autoregressive coefficients. Simulations show that efficiency gains are achieved by the adaptive procedure. (C) 2007 Elsevier B.V. All rights reserved.
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