Exploiting In fi nite Variance through Dummy Variables in an AR model

@inproceedings{Cavaliere2008ExploitingIF,
  title={Exploiting In fi nite Variance through Dummy Variables in an AR model},
  author={Giuseppe Cavaliere},
  year={2008}
}
In this paper we consider estimation and unit root testing in AR(1) models with infinite variance innovations. Specifically, we study the asymptotic properties of estimators obtained by dummying out ”large” innovations, i.e. exceeding a given threshold. These estimators reflect the common practice of dealing with large residuals by including impulse dummies in the estimated regression. Iterative versions of the dummy-variable estimator are also discussed. We provide conditions on the threshold… CONTINUE READING