The relationship between ARIMA-GARCH and unobserved component models with GARCH disturbances
The objective of this paper is to analyze the consequences of fitting ARIMA-GARCH models to series generated by conditionally heteroscedastic unobserved component models. Focusing on the local level model, we show that the heteroscedasticity is weaker in the ARIMA than in the local level disturbances. In certain cases, the IMA(1,1) model could even be wrongly seen as homoscedastic. Next, with regard to forecasting performance, we show that the prediction intervals based on the ARIMA model can be inappropriate as they incorporate the unit root while the intervals of the local level model can converge to the homoscedastic intervals when the heteroscedasticity appears only in the transitory noise. All the analytical results are illustrated with simulated and real time series.
Year of publication: |
2007-04
|
---|---|
Authors: | Pellegrini, Santiago ; Ruiz, Esther ; Espasa, Antoni |
Institutions: | Departamento de Estadistica, Universidad Carlos III de Madrid |
Saved in:
Saved in favorites
Similar items by person
-
Conditionally heteroscedastic unobserved component models and their reduced form
Pellegrini, Santiago, (2010)
-
Prediction intervals in conditionally heteroscedastic time series with stochastic components
Pellegrini, Santiago, (2011)
-
Prediction intervals in conditionally heteroscedastic time series with stochastic components
Pellegrini, Santiago, (2011)
- More ...