VECMs, IRFs & gretl

In a comment on my post yesterday, "psummers" kindly pointed out that the free econometrics package, gretl, will also produce confidence intervals for Impulse Response Functions (IRFs) generated by a VECM.

I had an earlier post about gretl, and here is a very brief run-down on using it to produce those VECM-IRF confidence intervals.

Impulse Response Functions From VECMs

In the comments and discussion associated with an earlier post on "Testing for Granger Causality" an interesting question arose. If we're using a VAR model for constructing Impulse Response Functions, then typically we'll want to compute and display confidence bands to go with the IRFs, because the latter are  simply "point predictions". The theory for this is really easy, and in the case of EViews it's just a trivial selection to get asymptotically valid confidence bands.

But what about IRFs from a VECM - how do we get confidence bands in this case? This is not nearly so simple, because of the presence of the error-correction term(s) in the model. EViews doesn't supply confidence bands with the IRFs in the case of VECMs. What alternatives do we have?

R 2.14.0 Released

A Halloween treat for R users! Version 2.14.0 was released today. Among other things there are big improvements for parallel processing.

For a quick synopsis of the new "goodies", see the post on the Revolutions blog.

© 2011, David E. Giles

My Hero!

Keen-eyed followers of this blog may have noticed that if you view my complete profile you'll learn that one of my interests is "staying at home". Actually it's a (male side of the) family tradition - though my son, Matt, seems to be bucking the trend!

As accurate as this profile is, I do have a small confession to make. I stole the line about staying at home from Professor Sir Richard Stone - specifically, from his listing in Who's Who when he was still alive.

Quote of the Day

"Reality is a Dangerous Concept."

 Source: Jerzy Neyman: On Time Series Analysis and Some Related Statistical Problems in Economics. (A Conference With Dr. Neyman in the Auditorium of the Department of Agriculture, 10 April, 1937, 11 a. m., Dr. Charles F. Sarle presiding). In Lectures and Conferences on Mathematical Statistics, Delivered by J. Neyman at the United States Department of Agriculture in April 1937, Graduate School of the United States Department of Agriculture, Washington D.C., p. 112.

© 2011, David E. Giles

VAR or VECM When Testing for Granger Causality?

It never ceases to amaze me that my post titled "How Many Weeks are There in a Year?" is at the top of my all-time hits list! Interestingly, the second-placed post is the one I titled "Testing for Granger Causality". Let's call that one the number one serious post. As with many of my posts, I've received quite a lot of direct emails about that piece on Granger causality testing, in addition to the published comments.

One question that has come up a few times relates to the use of  a VAR model for the levels of the data as the basis for doing the non-causality testing, even when we believe that the series in question may be cointegrated. Why not use a VECM model as the basis for non-causality testing in this case?

If it Ain't Broke, Don't Fix It!

For the most part I like engineers. In fact, some of my best friends are engineers. However, there's always the exception that "proves" the rule!

Back in 1978 I was appointed to a chair (full professorship) in what was then the Department of Econometrics & Operations Research at Monash University, in Australia. It's now the Department of Econometrics & Business Statistics. It was, and still is, a terrific department to be associated with. My colleagues and our students were wonderful. and I had nine productive years there.

Sargent and Sims are Econometricians!

It's official! This year's Economics Nobel laureates, Thomas Sargent and Christopher Sims, are Econometricians! The latest issue of the Royal Statistical Society's Newsletter makes that very point, clearly and repeatedly!

So, back off you Empirical Macro. types! Chris Sims certainly teaches grad. courses in Econometric Theory and Time Series, and in his c.v. he describes his areas of research interest as: "econometric theory for dynamic models; macroeconomic theory and policy". Notice how econometric theory comes first? So there!

I admit that the case is less convincing in the case of Sargent - but it depends on how broadly you define "econometrics". The web page at NYU's Stern School certainly declares him to be a macroeconomist. But he's a past-President of the Econometric Society. And both he and Sims are Fellows of that august body.

That's close enough for me! ☺

© 2011, David E. Giles

A Moniacal Economist

"In 1958, A. W. H. Phillips published in Economica what was to become one of the most widely cited articles ever written in economics. To mark the 50th anniversary of the paper, the New Zealand Association of Economists and the Econometric Society hosted the conference “Markets and Models: Policy Frontiers in the A. W. H. Phillips Tradition” in July 2008."

(Economica, 2011, Vol 78, p.1)

The January  issue of the journal Economica this year was devoted to papers from the A. W. H. 50th Anniversary Symposium, in honour of the New Zealander, A. W. H. ("Bill") Phillips, well-known to economists for his development of the so-called "Phillips Curve". I strongly recommend this issue of the journal.

Cook-Book Statistics

In my post yesterday I wrote about a remark made by the well-known statistician, Michael Stephens. Here's another interesting comment from him, referring to his departure from post-World War II England for the U.S.:

"Out of the blue came an offer from Case Institute of Technology (now Case-Western Reserve) and off I went to Cleveland. Case had a huge Univac computer, all whirling tapes and flashing lights, and I decided to learn programming. Next to computing was Statistics, so I thought I would learn some of that too. I took some cook-book classes, and thought I was learning statistics. For the life of me, I can't understand why I didn’t wonder why the ratio of this to that would be called F and looked up on page 376."

(Michael Stephens, in A Conversation With Michael A. Stephens, by Richard Lockhart)

Seems I'm not alone when it comes to cook-book courses (and here)!

© 2011, David E. Giles