HAC Corrections for Strongly Autocorrelated Time Series∗
نویسنده
چکیده
Applied work routinely relies on heteroskedasticity and autorcorrelation consistent (HAC) standard errors when conducting inference in a time series setting. As is well known, however, these corrections perform poorly in small samples under pronounced autocorrelations. In this paper, I first provide a review of popular methods to clarify the reasons for this failure. I then derive inference that remains valid under a specific form of strong dependence. In particular, I assume that the long-run properties can be approximated by a stationary Gaussian AR(1) model, with coefficient arbitrarily close to one. In this setting, I derive tests that come close to maximizing a weighted average power criterion. Small sample simulations show these tests to perform well, also in a
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