Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation for Julia.

```
Pkg.add("CovarianceMatrices")
```

This package provides types and methods useful to obtain consistent estimates of the long run covariance matrix of a random process.

Three classes of estimators are considered:

**HAC**- heteroskedasticity and autocorrelation consistent (Andrews, 1996; Newey and West, 1994)**VARHAC**- Vector Autoregression based HAC (Den Haan and Levine)**Smoothed**- (Smith, 2014)**HC**- hetheroskedasticity consistent (White, 1982)**CRVE**- cluster robust (Arellano, 1986)

The typical application of these estimators is to conduct robust inference about parameters of a statistical model.

The package extends methods defined in StatsBase.jl and GLM.jl to provide a plug-and-play replacement for the standard errors calculated by default by GLM.jl.

The API can be used regardless of whether the model is fit with GLM.jl and developer can extend their fit functions to provides robust standard errors.

Available kernel types are:

`TruncatedKernel`

`BartlettKernel`

`ParzenKernel`

`TukeyHanningKernel`

`QuadraticSpectralKernel`

For example, `ParzenKernel{NeweyWest}()`

return an instance of `TruncatedKernel`

parametrized by `NeweyWest`

, the type that corresponds to the optimal bandwidth calculated following Newey and West (1994). Similarly, `ParzenKernel{Andrews}()`

corresponds to the optimal bandwidth obtained in Andrews (1991). If the bandwidth is known, it can be directly passed, i.e. `TruncatedKernel(2)`

.

In the regression context, the function `vcov`

does all the work:

```
vcov(::HAC, ::DataFrameRegressionModel; prewhite = true)
```

Consider the following artificial data (a regression with autoregressive error component):

```
using CovarianceMatrices
using Random, DataFrames, GLM
Random.seed!(1)
n = 500
x = randn(n,5)
u = zeros(2*n)
u[1] = rand()
for j in 2:2*n
u[j] = 0.78*u[j-1] + randn()
end
u = u[n+1:2*n]
y = 0.1 .+ x*[0.2, 0.3, 0.0, 0.0, 0.5] + u
df = convert(DataFrame,x)
df[!,:y] = y
```

Using the data in `df`

, the coefficient of the regression can be estimated using `GLM`

```
lm1 = glm(@formula(y~x1+x2+x3+x4+x5), df, Normal(), IdentityLink())
```

To get a consistent estimate of the long run variance of the estimated coefficients using a Quadratic Spectral kernel with automatic bandwidth selection *à la* Andrews

```
vcov(QuadraticSpectralKernel{Andrews}(), lm1, prewhite = false)
```

If one wants to estimate the long-time variance using the same kernel, but with a bandwidth selected *à la* Newey-West

```
vcov(QuadraticSpectralKernel{NeweyWest}(), lm1, prewhite = false)
```

The standard errors can be obtained by the `stderror`

method

```
stderror( ::HAC, ::DataFrameRegressionModel; prewhite::Bool)
```

For the previous example:

```
stderror(QuadraticSpectralKernel{NeweyWest}(), lm1, prewhite = false)
```

Sometime is useful to access the bandwidth selected by the automatic procedures. This can be done using the `optimalbandwidth`

method

```
optimalbandwidth(QuadraticSpectralKernel{NeweyWest}(), lm1; prewhite = false)
optimalbandwidth(QuadraticSpectralKernel{Andrews}(), lm1; prewhite = false)
```

Alternatively, the optimal bandwidth is stored in the kernel structure (upon calculation of the variance) and can be accessed. This requires however that the kernel type is materialized:

```
kernel = QuadraticSpectralKernel{NeweyWest}()
stderror(kernel, lm1, prewhite = false)
bw = CovarianceMatrices.bandwidth(kernel)
```

`GLM.jl`

One might want to calculate variance estimator when the regression (or some other model) is manually fit. Below is an example of how this can be accomplished.

```
X = [ones(n) x]
_,K = size(X)
b = X\y
res = y .- X*b
momentmatrix = X.*res
B = inv(X'X) # Jacobian of moment conditions
A = lrvar(QuadraticSpectralKernel(bw[1]), momentmatrix, scale = n^2/(n-K)) # df adjustment is built into vcov
Σ = B*A*B
Σ .- vcov(QuadraticSpectralKernel(bw[1]), lm1, dof_adjustment=true)
```

The utility function `sandwich`

does all this automatically:

```
vcov(QuadraticSpectralKernel(bw[1]), lm1, dof_adjustment=true) ≈ CovarianceMatrices.sandwich(QuadraticSpectralKernel(bw[1]), B, momentmatrix, dof = K)
vcov(QuadraticSpectralKernel(bw[1]), lm1, dof_adjustment=false) ≈ CovarianceMatrices.sandwich(QuadraticSpectralKernel(bw[1]), B, momentmatrix, dof = 0)
```

As in the HAC case, `vcov`

and `stderror`

are the main functions. They know get as argument the type of robust variance being sought

```
vcov(::HC, ::DataFrameRegressionModel)
```

Where HC is an abstract type with the following concrete types:

`HC0`

`HC1`

(this is`HC0`

with the degree of freedom adjustment)`HC2`

`HC3`

`HC4`

`HC4m`

`HC5`

``` using CovarianceMatrices, DataFrames, GLM # A Gamma example, from McCullagh & Nelder (1989, pp. 300-2) # The weights are added just to test the interface and are not part # of the original data clotting = DataFrame( u = log.([5,10,15,20,30,40,60,80,100]), lot1 = [118,58,42,35,27,25,21,19,18], lot2 = [69,35,26,21,18,16,13,12,12], w = 9*[1/8, 1/9, 1/25, 1/6, 1/14, 1/25, 1/15, 1/13, 0.3022039] ) wOLS = fit(GeneralizedLinearModel, @formula(lot1~u), clotting, Normal(), wts = clotting[!,:w])

vcov(HC0(),wOLS) vcov(HC1(),wOLS) vcov(HC2(),wOLS) vcov(HC3(),wOLS) vcov(HC4(),wOLS) vcov(HC4m(),wOLS) vcov(HC5(),wOLS)

```
## CRHC (Cluster robust heteroskedasticty consistent)
The API of this class of variance estimators is subject to change, so please use with care. The difficulty is that `CRHC` type needs to have access to the variable along which dimension the clustering must take place. For the moment, the following approach works
```

using RDatasets df = dataset("plm", "Grunfeld") lm = glm(@formula(Inv~Value+Capital), df, Normal(), IdentityLink()) vcov(CRHC1(:Firm, df), lm) stderror(CRHC1(:Firm, df),lm)

```
Alternatively, the cluster indeicatror can be passed directly (but this will only work if there are not missing values)
```

vcov(CRHC1(df[:Firm]), lm) stderror(CRHC1(df[:Firm]),lm)

```
As in the `HAC` case, `sandwich` and `lrvar` can be leveraged to constract cluster-robust variances without relying on `GLM.jl`.
## Performances
```

using BenchmarkTools

Z = randn(10000, 10) @btime lrvar(BartlettKernel{Andrews}(), Z, prewhite = true)

```
```

library(sandwich) library(microbenchmark) Z <- matrix(rnorm(10000*10), 10000, 10) microbenchmark( "Bartlett/Newey" = {lrvar(Z, type = "Andrews", kernel = "Bartlett")})

10/29/2014

3 days ago

347 commits