ECO 7311

Empirical Time Series

Spring 2006

Chu-Ping C. Vijverberg Class hours: Th 2:00:4:45 PM

CBW 1.101 Office hours: Tu & Th 11:00-12:00, Appt.
Phone: 972-883-4556
e-mail: ccv031000@utdallas.edu

This course is to introduce theoretical and empirical time series analysis. In addition to the
theoretical part, various empirical economic papers will be investigated to perceive how
economists analyze economic data with old and new time series tools and what the
corresponding economic policy implications behind these results are. In addition to one final
exam, students are required to either replicate 2 empirical economic papers or hand in one term
paper. Stata (and/or Matlab, or R) will be used in this course. Students who do not know Stata
are advised to take the one credit hour Stata course in the Econ program (POEC 6V81).

Prerequisites:
- Mathematical Economics (ECO 5309) and Econometrics I (ECO 6309).

Grading Procedure:
The grade for this course depends on the student's performance in the following:
(1) 20% Quizzes or homework
(2) 20% 2 Presentations
(3) 30% 2 replications or 1 term paper
(4) 30% Final exam, April 27, 2006

- Unless homework is related to computer codes, homework will not be collected. If the
answers (computer codes and the results) of any homework are more than one page,
homework should be stapled. Unstapled homework will not be graded.
- Quizzes will be announced in advance. Quizzes are minor variations of the homework
questions. Quizzes are open-book and open-notes tests. There will be at least 5 quizzes.
The lowest quiz grade will be dropped.
- Final exam is a closed-book and closed-notes exam. Exam questions will be selected
from homework, class notes and quizzes.
- Except for the exam schedule, the following course outline may be changed according to
the need of the class perceived by the instructor.

Tentative course outline:

The following list outlines the topics that will be covered. For each topic, theory will be introduced
first and empirical papers will be discussed next.

January 12 – January 26: Introduction to univariate ARMA models

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February 2- February 23: Unit root test, ARIMA models, Long-memory model, Structural break
model and their relationship with empirical economics.

March 2 – March 16: ARCH, GARCH, long memory GARCH, and ACD models.

(March 9: Spring Break)

March 23 – April 20: Vector Autoregressive (VAR), Impulse Response, Variance Decomposition,
Cointegaration Test, Error Correction Models, Bayesian VAR, Kalman Filtering (?), Time
Deformation (?).

April 27: Final Exam

Texts:

Books:
Univaritate time series
Brockwell Peter and Richard Davis, 2002, Introduction to Time Series and Forecasting, Springer-
Verlag
Box, George, G. M. Jenkins and G. Reinsel, 1994, Time Series Analysis, Prentice Hall.
Gray, H. L., W.A. Woodward, and N. F. Zhang, 2001, Time Series Analysis, manuscript.

Multiple time series

Brandt, Patrick and John Williams, 2006, Multiple Time Series Models, Sage Series Publication,
forthcoming.
Hamilton, James, 1994, Time Series Analysis, Princeton University Press.
Lutkepohl, Helmut, 2005, New Introduction to Multiple Time Series Analysis, Springer-Verlag,

Papers

UNIT ROOTS

* Nelson, Charles R. and Charles I. Plosser (1982) “Trends and Random Walks in
Macroeconomic Time Series: Some Evidence and Implications,” Journal of Monetary
Economics, 10, 139-162.
Blanchard and Summers. (1987) “Hysteresis in Unemployment,” European Economic
Review, 31, 288-295.
* Perron, P. (1989). “The Great Crash, the Oil Price Shock and the Unit Root
Hypothesis,” Econometrica, 57, 1361-1401.
* Zivot, E. and D. W. K. Andrews (1992) “Further Evidence On the Great Crash, the
Oil Price Shock and the Unit-root Hypothesis,” Journal of Business and Economic
Statistics, 10, 251-270.

Zivot, E. and D.W.K. Andrews (1992) “Further evidence on the great crash, the oil-
price shock, and the unit-root hypothesis,” Journal of Business and Economic
Statistics, 10, 251-270.

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Rudebusch, G., (1992) “Trends and Random Walks in Macroeconomic Time Series: A
Reexamination,” International Economic Review, 33, 661-680.

* Stock, J. H. (1994) “Unit Root and Trend Breaks,” In Engle, R.F., McFadden, D.
(Eds.), Handbook of Econometrics, Vol. IV. North-Holland, Amsterdam.

Cross, R., (1995) “Is the Natural Rate Hypothesis Consistent with Hysteresis?” in
R. Cross (Ed.), The Natural Rate of Unemployment: Reflections on 25 years of the
Hypothesism Cambridge: Cambridge University Press, 181-200.

Leybourne, S., M. McCabe and J. Tremayne (1996) “Can economic time series be
differenced to stationarity?” Journal of Business and Economic Statistics, 14, 435-
446.

Montgomery, A. and V. Zarnowitz, R. Tsay and G. Tiao. (1998) “Forecasting the

U.S. Unemployment Rate,” Journal of the American Statistical Association, 93,
442, 478-493.

* Granger, C.W.J. (2001). “Macroeconometrics - Past and future,” Journal of

Econometrics, 100, 17-19.

* Stock, J.H. (2001). “Macro-econometrics,” Journal of Econometrics, 100, 29-32.

* Phillips, P.C.B. (2001). “Trending time series and macroeconomic activity: Some
present and future challenges,” Journal of Econometrics, 100, 21-27.

Stanley, T. D. (2004) “Does Unemployment Hysteresis Falsify the Natural Rate

Hypothesis? A Meta-Regression Analysis,” Journal of Economic Surveys, 18, 4, 589-
612.

LONG MEMORY
* Granger, C.W.J. and R. Joyeux (1980). “An introduction to long-memory time series
models and fractional differencing,” Journal of Time Series Analysis, 1, 15-29.

Gray, H.L., W. Woodward and N. Zhang (1989). “On generalized fractional processes,”
Journal of Time Series Analysis, 10, 233-256.

* Diebold FX and Rudebusch GD. (1989). Long Memory And Persistence In Aggregate
Output, Journal of Monetary Economics, 24 (2): 189-209 SEP.

Lo AW. (1991) Long-Term-Memory in Stock-Market Prices, Econometrica, 59 (5): 1279-

1313 SEP.

Diebold, F.X. and G.D. Rudebusch (1991). “On the power of Dickey-Fuller tests
against fractional alternatives,” Economics Letters, 35, 155-160.

Hassler, U. and J. Wolters (1994). “On the power of unit roots against fractional
alternatives,” Economics Letters, 45, 1-5.

Baillie RT, Bollerslev T, (1994) The Long Memory Of The Forward Premium, Journal of
International Money and Finance, 13 (5): 565-571 OCT.

Chan, N.H. and N. Terrin (1995). “Inference for unstable long-memory processes with
applications to fractional unit root autoregression,” Annals of Statistics, 23,
1662-1683.

Baillie, R.T. (1996). “Long memory processes and fractional integration in

econometrics,” Journal of Econometrics, 73, 5-59.

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Bollerslev, Tim and Mikkelsen Hans. (1996). “Modeling and Pricing long memory in
stock market volatility,” Journal of Econometrics, 73, 151-184.

Chung, Ching-Fan. (1996) “Estimating a Generalized Long Memory Process,” Journal of

Econometrics, 73, 237-259.
Chung, Ching-Fan. (1996) Estimating a Generalized Long Memory Process, Journal of
Time Series Analysis, 17, 2, 111-140.
Koustas, Z. and W. Veloce (1996) “Unemployment Hysteresis in Canada: An Approach
based on Long-memory Time Series Models,” Applied Economics, 28, 823-831.

Baillie, RT. (1996). Long memory processes and fractional integration in

econometrics, Journal of Econometrics, 73 (1): 5-59 JUL.

* Bollerslev T, Mikkelsen HO, (1996). “Modeling and Pricing Long Memory In Stock
Market Volatility,” Journal of Econometrics, 73 (1): 151-184 JUL.

Andersen TG, Bollerslev T, (1998) “Answering The Skeptics: Yes, Standard Volatility
Models Do Provide Accurate Forecasts,” International Economic Review, 39 (4): 885-
905 NOV.

Breidt, F.J., N. Crat and P. de Lima (1998). “The detection and estimation of long
memory in stochastic volatility,” Journal of Econometrics, 83, 248-325.
Parke, W.R. (1999). “What is fractional integration?” The Review of Economics and
Statistics, 81, 632-638.

Liu, M. (2000). “Modelling long memory in stock market volatility,” Journal of

Econometrics, 99, 139-171.

* Granger, C.W.J. (2000). “Current perspectives on long memory processes,” Chung-Hua

Series of Lectures, No. 26, Institute of Economics, Academia Sinica, Taiwan.

Davidson, J. and T.T. Terasvirta (Eds.) (2002). “Long memory and nonlinear time
series,” Journal of Econometrics, 110 (2) 105-437.

Van Dijk, Dick, Phillip Franses, and Richard Paap (2002). “A Nonlinear Long-
Memory Model with an application to US Unemployment,” Journal of Econometrics,
110, 135-165.

Mikosch, T. and C. Starica (2004). “Nonstationarities in financial time series the

long, range dependence and the IGARCH effects,” Review of Economics and Statistics,
86, 378-390.

Doornik, J.A. and M. Ooms (2004). “Inference and forecasting for ARFIMA models with
an application to US and UK inflation,” Studies in Nonlinear Dynamics and
Econometrics, 8, No. 2, Article 14.

Stanley, T. D. (2004) “Does Unemployment Hysteresis Falsify the Natural Rate

Hypothesis? A Meta-Regression Analysis,” Journal of Economic Surveys, 18, 4, 589-
612.

STRUCTURAL BREAK
Stock, J. H. and M. W. Watson (1996). “Evidence on Structural Instability in
Macroeconomic Time Series Relations,” Journal of Business and Economic Statistics,
14, 11-30.
Dufour, J.M. and E. Ghysels (Eds.) (1996). “Recent developments in the econometrics
of structural change,” Journal of Econometrics, 70, 1-316.
Hidalgo, Javier and Peter M. Robinson (1996). “Testing For Structural Change in a
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Long-memory Environment,” Journal of Econometrics, 70, 159-174.
* Perron, P. (1997). “Further Evidence on Breaking Trend Functions in Macroeconomic
Variables,” Journal of Econometrics, 80, 355-385.

Papell, D., C. Murray, and H. Ghiblawi, (2000). “The Structure of Unemployment,” The
Review of Economics and Statistics, May, *2,2, 309-315.

Diebold, Francis X. and Atsushi Inoue (2001). “Long Memory and Regime Switching,”
Journal of Econometrics, 105, 131-159
Busetti, F. and A. Harvey (2001). “Testing for the presence of a random walk in
series with structural breaks,” Journal of Time Series Analysis, 22, 127-150.

Hansen, B.E. (2001). “The New Econometrics of Structural Change: Dating Breaks in
U.S. Labor Productivity,” Journal of Economic Perspectives, 15 (4), 117-128.

Hansen, P.R. (2003). “Structural breaks in the cointegrated vector autoregressive

model,” Journal of Econometrics, 114, 261-195.

Busetti, F. and A. Harvey (2003). “Further comments on stationarity tests in series

with structural breaks,” Journal of Time Series Analysis, 24, 137-140.

Granger, C.W.J. and N. Hyung (2004). “Occasional structural breaks and long memory
with an application to the S&P 500 absolute stock returns,” Journal of Empirical
Finance, 11, 399-421.
Perron, Pierre and Xiaokang Zhu (2005). “Structural Breaks with Deterministic and
Stochastic Trends”, Journal of Econometrics, forthcoming.
* Banerjee, A. and G. Urga (2005). “Modelling structural breaks, long memory and
stock market volatility: an overview,” Journal of Econometrics, 129, 1-34.

* Perron, P. and Xiaokang Zhu (2005). “Structural breaks with deterministic and
stochastic trends,” Journal of Econometrics, 129, 65-119.

Lazarova, S. (2005). “Testing for structural change in regression with long memory
processes,” Journal of Econometrics, 129, 329-372.

ARCH and GARCH

Bollerslev T, (1990) “Modeling The Coherence In Short-Run Nominal Exchange-Rates - A
Multivariate Generalized ARCH Model,” Review of Economics and Statistics, 72 (3):
498-505 AUG.

Bollerslev T, Chou, RY, Kroner KF, (1992) “ARCH Modeling In Finance - A Review Of
The Theory And Empirical-Evidence,” Journal of Econometrics, 52 (1-2): 5-59 APR-MAY.

Bollerslev T, Engle RF, (1993) “Common Persistence In Conditional Variances,”

Econometrica, 61 (1): 167-186 JAN.

Baillie RT, Bollerslev T, Mikkelsen HO, (1996) “Fractionally Integrated Generalized

Autoregressive Conditional Heteroskedasticity,” Journal of Econometrics, 74 (1): 3-
30 SEP.

* Engle, R.F. and J.R. Russell (1998). “Autoregressive conditional duration: a new
model for irregularly-spaced transaction data,” Econometrica, 66, 1127-1162.

Bollerslev T, (2001). “Generalized Autoregressive Conditional Heteroskedasticity”,

Journal of Econometrics, 100 (1): A307-A327 JAN.

Bollerslev T, (2001). “Financial Econometrics: Past Developments and Future

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Challenges,” Journal of Econometrics, 100 (1): 41-51 JAN.

Engle, R. (2001). “GARCH 101: The Use of ARCH/GARCH Models in Applied Econometrics,”
Journal of Economic Perspectives, 15 (4), 157-168.

Zhang, M.Y., J.R. Russell and R.S. Tsay (2001). “A nonlinear autoregressive
conditional duration model with applications to financial transaction data,” Journal
of Econometrics, 104, 179-207.

Bauwens, L. and D. Veredas (2004). “Thee stochastic conditional duration model: a

latent factor model for the analysis of financial durations,” Journal of
Econometrics, 119, 381-412.

* Granger, C.W.J. (2005). “The past and future of empirical finance: some personal
comments,” Journal of Econometrics, 129, 35-40.

Fernandes, M. and J. Grammig (2006). “A family of autoregressive conditional

duration models,” Journal of Econometrics, 130, 1-23.

VAR
Baillie RT, Bollerslev T, (1990). “A Multivariate Generalized ARCH Approach To
Modeling Risk Premia In Forward Foreign-Exchange Rate Markets,” Journal of
International Money and Finance, 9 (3): 309-324 SEP.

Clements, MP and Mizon GE, (1991) “Empirical-Analysis of Macroeconomic Time-Series -

VAR and Structural Models,” European Economic Review 35 (4): 887-917 May.

* King, R.,(1991). “Stochastic Trends and Economics Fluctuations,” American

Economic Review, 81:4, 819-40.

Bernanke, B.S. and A. Blinder (1992). “The Federal Funds Rate and the Channels of
Monetary Transmission,” American Economic Review, 82 (4), 901-21.

* Watson, M.W., R. Engle and D. McFadden (Eds.) (1994). “Vector Autoregressions and
Cointegration,” Handbook of Econometrics, 4, 2844-915.

Baillie RT, Bollerslev T, (1994) Cointegration, Fractional Cointegration, And

Exchange-Rate Dynamics, Journal of Finance, 49 (2): 737-745 JUN.

* Gertler, M. and S. Gilchrist (1994). “Monetary policy, business cycles, and the
behavior of small manufacturing firms,” Quarterly Journal of Economics, 109 (May),
309-340.

* Gertler, M. and S. Gilchrist (1994). “The role of credit market imperfections in

the monetary transmission mechanism: Arguments and evidence,” Scandinavian Journal
of Economics, 1, 43-64.

Webb, RH. (1995) “Forecasts of Inflation from VAR Models,” Journal of Forecasting 14
(3): 267-285 May.

Soderlind, Paul and Anders Vredin. (1996). “Applied Cointegration Analysis in the
Mirror of Macroeconomic Theory,” Journal of Applied Econometrics, Vol. 11, No. 4.
Jul. - Aug., , pp. 363-381.

Faust, Jon and Eric M Leeper, (1997). “When do Long-Run Identifying Restrictions
Give Reliable Results?” Journal of Business and Economic Statistics, July, 15:3, pp.
345-353.

Bernanke, Ben S. and Ilian Mihov, (1998). “Measuring Monetary Policy,” The Quarterly
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Journal of Economics, 113, 3,Aug., 869-902.

Rudebusch, R.D. (1998). “Do Measures of Monetary Policy in a VAR Make Sense?”,
International Economic Review, 39 (4), 907-31.

Cochrane, J. (1998). “What do the VARs mean? Measuring the output effects of
monetary policy,” Journal of Monetary Economics, 41 (2): 277-300 April

Bagliano, FC and Favero CA, (1998). “Measuring Monetary Policy with VAR models: An
evaluation,” European Economic Review, 42 (6): 1069-1112 Jun

Rudebusch Glenn D. (1998). “Do Measures of Monetary Policy in a VAR Make Sense?”
International Economic Review, Vol. 39, No. 4, Symposium on Forecasting and
Empirical Methods in Macroeconomics and Finance (Nov), pp. 907-931

Sims, Christopher (1998). “A. Comment on Glenn Rudebusch's - Do Measures of Monetary

Policy in a VAR Make Sense?” International Economic Review, 39, No. 4, Symposium on
Forecasting and Empirical Methods in Macroeconomics and Finance (Nov), pp. 933-941.

Rudebusch, Glenn D. (1998). “Do Measures of Monetary Policy in a VAR Make Sense? A
Reply to Christopher A. Sims,” International Economic Review Vol. 39, No. 4,
Symposium on Forecasting and Empirical Methods in Macroeconomics and Finance Nov,
943-948.

* Stock, James H. and Mark W. Watson, (2001). “Vector Autoregressions,” The Journal
of Economic Perspectives, 15, 4, Autumn, 101-115.

Dittmann, I. (2004). “Error correction models for fractionally cointegrated time

series,” Journal of Time Series Analysis, 25, 27-32.

Bernanke BS, Boivin J, Eliasz P, (2005). “Measuring the effects of monetary policy:
A factor-augmented vector autoregressive (FAVAR) approach,” Quarterly Journal of
Economics, 120 (1): 387-422 Feb.