Simultaneous Bandwidths Determination for DK-HAC Estimators and Long-Run Variance Estimation in Nonparametric Settings

TL;DR

This paper develops data-dependent bandwidth selection methods for DK-HAC estimators, improving long-run variance estimation in nonparametric and potentially nonstationary data settings by balancing bias and variance.

Contribution

It introduces optimal bandwidths for DK-HAC estimators that account for nonstationarity and compares plug-in and MSE-based methods, enhancing size control and robustness.

Findings

Plug-in bandwidths outperform MSE-based ones in size control.

Optimal bandwidths depend on nonstationarity and bias-variance trade-off.

Long-run variance estimation remains valid in nonparametric, nonstationary contexts.

Abstract

We consider the derivation of data-dependent simultaneous bandwidths for double kernel heteroskedasticity and autocorrelation consistent (DK-HAC) estimators. In addition to the usual smoothing over lagged autocovariances for classical HAC estimators, the DK-HAC estimator also applies smoothing over the time direction. We obtain the optimal bandwidths that jointly minimize the global asymptotic MSE criterion and discuss the trade-off between bias and variance with respect to smoothing over lagged autocovariances and over time. Unlike the MSE results of Andrews (1991), we establish how nonstationarity affects the bias-variance trade-o?. We use the plug-in approach to construct data-dependent bandwidths for the DK-HAC estimators and compare them with the DK-HAC estimators from Casini (2021) that use data-dependent bandwidths obtained from a sequential MSE criterion. The former performs better in terms of size control, especially with stationary and close to stationary data. Finally, we consider long-run variance estimation under the assumption that the series is a function of a nonparametric estimator rather than of a semiparametric estimator that enjoys the usual T^(1/2) rate of convergence. Thus, we also establish the validity of consistent long-run variance estimation in nonparametric parameter estimation settings.