Rationalizing an Econometric Test Model: An Empirical Investigation of ARCH Family Models
Abstract
Selecting an appropriate econometric testing model is of high value to scholars of this field. The central focus of this paper is to empirically investigate the rationality and appropriateness of an econometric testing model for time series macroeconomic variables that exhibit clustering volatility. We test the India’s Producer Price Index (PPI) covering the period January 01, 1947 to October 30, 2015 arranged on monthly basis by using the ARCH family models. The empirical investigation and statistical analysis show that among ARCH, GARCH, TARCH, PARCH and EGARCH models, the most rationale and appropriate testing model for PPI and as such variables that share common nature is the GARCH model as its statisitical result displays lower values for AIC, SIC and HIC that positively correspond with theoretical foundation of the econometric literature and satisfy the philosophical requirements.
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