Recent Developments in Cointegration

Recently, I posted about a special issue of the journal, Econometrics, devoted to "Unit Roots and Structural Breaks".

Another recent special issue of that journal will be of equal interest to readers of this blog. Katerina Juselius has guest- edited an issue titles, "Recent Developments in Cointegration". The papers published so far in this issue are, of course, open-access. Check them out!

© 2017, David E. Giles

Instrumental Variables & the Frisch-Waugh-Lovell Theorem

The so-called Frisch-Waugh-Lovell (FWL) Theorem is a standard result that we meet in pretty much any introductory grad. course in econometrics.

The theorem is so-named because (i) in the very fist volume of Econometrica Frisch and Waugh (1933) established it in the particular context of "de-trending" time-series data; and (ii) Lovell (1963) demonstrated that the same result establishes the equivalence of "seasonally adjusting" time-series data (in a particular way), and including seasonal dummy variables in an OLS regression model. (Also, see Lovell, 2008.)

We'll take a look at the statement of the FWL Theorem in a moment. First, though, it's important to note that it's purely an algebraic/geometric result. Although it arises in the context of regression analysis, it has no statistical content, per se.

What's not generally recognized, however, is that the FWL Theorem doesn't rely on the geometry of OLS. In fact, it relies on the geometry of the Instrumental Variables (IV) estimator - of which OLS is a special case, of course. (OLS is just IV in the just-identified case, with the regressors being used as their own instruments.)

Implicitly, this was shown in an old paper of mine (Giles, 1984) where I extended Lovell's analysis to the context of IV estimation. However, in that paper I didn't spell out the generality of the FWL-IV result.

Let's take a look at all of this.

Unit Roots & Structural Breaks

The open-access journal, Econometrics (of which I'm happy to be an Editorial Board member), has recently published a special issue on the topic of "Unit Roots and Structural Breaks". 

This issue is guest-edited by Pierre Perron, and it includes eight really terrific papers. You can find the special issue here.

© 2017, David E. Giles

Marc Bellemare on "How to Publish in Academic Journals"

If you don't follow Marc Bellemare's blog, you should do.

And if you read only one other blog post this week, it should be this one from Marc, titled, "How to Publish in Academic Journals". Read his slides that are linked in the post.

Great advice that is totally applicable to anyone doing research in econometrics - theory or applied.

© 2017, David E. Giles

June Reading List

Here are some suggestions for you:

• Ai, C. and E. C. Norton, 2003. Interaction terms in logit and probit models. Economics Letters, 80, 123-129.
• Hirschberg, J. and J. Lye, 2017. Inverting the indirect - the ellipse and the Boomerang: Visualizing the confidence intervals of the structural coefficient from two-stage least squares. Journal of Econometrics, in press.
• Kim, I. and S. Park, 2017. Likelihood ratio tests for multivariate normality. Communications in Statistics - Theory and Methods, in press.
• Knotek, E. S. and S. Zaman, 2017. Financial nowcasts and their usefulness in macroeconomic forecasting. Working Paper 17-02, Federal Reserve Bank of Cleveland.
• Marczak, M. and V. Goméz, 2017. Monthly US business cycle indicators: A new multivariate approach based on a band-pass filter. Empirical Economics, 52, 1379-1408.
• Sherwood, C. and D. W. Kwak, 2017. New insights into an old problem - enhancing student learning outcomes in an introductory statistics course. Applied Economics, in press.

© 2017, David E. Giles