The Local to Unity Dynamic Tobit Model
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arXiv
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| Hauptverfasser: | , |
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| Format: | Preprint |
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2022
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| author | Bykhovskaya, Anna Duffy, James A. |
| author_facet | Bykhovskaya, Anna Duffy, James A. |
| contents | This paper considers highly persistent time series that are subject to nonlinearities in the form of censoring or an occasionally binding constraint, such as are regularly encountered in macroeconomics. A tractable candidate model for such series is the dynamic Tobit with a root local to unity. We show that this model generates a process that converges weakly to a non-standard limiting process, that is constrained (regulated) to be positive. Surprisingly, despite the presence of censoring, the OLS estimators of the model parameters are consistent. We show that this allows OLS-based inferences to be drawn on the overall persistence of the process (as measured by the sum of the autoregressive coefficients), and for the null of a unit root to be tested in the presence of censoring. Our simulations illustrate that the conventional ADF test substantially over-rejects when the data is generated by a dynamic Tobit with a unit root, whereas our proposed test is correctly sized. We provide an application of our methods to testing for a unit root in the Swiss franc / euro exchange rate, during a period when this was subject to an occasionally binding lower bound. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2210_02599 |
| institution | arXiv |
| publishDate | 2022 |
| record_format | arxiv |
| spellingShingle | The Local to Unity Dynamic Tobit Model Bykhovskaya, Anna Duffy, James A. Econometrics Statistics Theory 62M10 (Primary), 62F12, 62M05, 62P20 (Secondary) This paper considers highly persistent time series that are subject to nonlinearities in the form of censoring or an occasionally binding constraint, such as are regularly encountered in macroeconomics. A tractable candidate model for such series is the dynamic Tobit with a root local to unity. We show that this model generates a process that converges weakly to a non-standard limiting process, that is constrained (regulated) to be positive. Surprisingly, despite the presence of censoring, the OLS estimators of the model parameters are consistent. We show that this allows OLS-based inferences to be drawn on the overall persistence of the process (as measured by the sum of the autoregressive coefficients), and for the null of a unit root to be tested in the presence of censoring. Our simulations illustrate that the conventional ADF test substantially over-rejects when the data is generated by a dynamic Tobit with a unit root, whereas our proposed test is correctly sized. We provide an application of our methods to testing for a unit root in the Swiss franc / euro exchange rate, during a period when this was subject to an occasionally binding lower bound. |
| title | The Local to Unity Dynamic Tobit Model |
| topic | Econometrics Statistics Theory 62M10 (Primary), 62F12, 62M05, 62P20 (Secondary) |
| url | https://arxiv.org/abs/2210.02599 |