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Testing linear relationships between non-constant variances of economic variables

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  • Hirukawa, Junichi
  • Raïssi, Hamdi

Abstract

We aim to assess linear relationships between the non-constant variances of economic variables. A two-step methodology is proposed to solve this problem. First, the conditional mean is filtered by mean of a vector autoregressive (VAR) model. Then, a bootstrap cumulative sum (CUSUM) test is applied to the residuals. Simulations suggest a good behavior of the test, for sample sizes commonly encountered in practice. The tool we provide is intended to highlight relations, or draw common patterns between economic variables, through their non-constant variances. The outputs of this paper are illustrated considering U.S. regional data.

Suggested Citation

  • Hirukawa, Junichi & Raïssi, Hamdi, 2020. "Testing linear relationships between non-constant variances of economic variables," Economic Modelling, Elsevier, vol. 90(C), pages 182-189.
    • Handle: RePEc:eee:ecmode:v:90:y:2020:i:c:p:182-189
    DOI: 10.1016/j.econmod.2020.05.007
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    More about this item

    Keywords

    Common variance patterns; VAR models; CUSUM tests; Wild bootstrap;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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