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Fitting probability distributions to economic growth: a maximum likelihood approach
Stockholm University, Faculty of Social Sciences, Department of Statistics.
Stockholm University, Faculty of Social Sciences, Department of Statistics.
2016 (English)In: Journal of Applied Statistics, ISSN 0266-4763, E-ISSN 1360-0532, Vol. 43, no 9, 1583-1603 p.Article in journal (Refereed) Published
Abstract [en]

The growth rate of the gross domestic product (GDP) usually carries heteroscedasticity, asymmetry and fat-tails. In this study three important and significantly heteroscedastic GDP series are examined. A Normal, normal-mixture, normal-asymmetric Laplace distribution and a Student's t-Asymmetric Laplace (TAL) distribution mixture are considered for distributional fit comparison of GDP growth series after removing heteroscedasticity. The parameters of the distributions have been estimated using maximum likelihood method. Based on the results of different accuracy measures, goodness-of-fit tests and plots, we find out that in the case of asymmetric, heteroscedastic and highly leptokurtic data the TAL-distribution fits better than the alternatives. In the case of asymmetric, heteroscedastic but less leptokurtic data the NM fit is superior. Furthermore, a simulation study has been carried out to obtain standard errors for the estimated parameters. The results of this study might be used in e.g. density forecasting of GDP growth series or to compare different economies.

Place, publisher, year, edition, pages
2016. Vol. 43, no 9, 1583-1603 p.
Keyword [en]
Normal, normal-mixture, normal-asymmetric Laplace, Student's t-asymmetric Laplace, maximum likelihood estimation
National Category
Probability Theory and Statistics
Research subject
Statistics
Identifiers
URN: urn:nbn:se:su:diva-127172DOI: 10.1080/02664763.2015.1117586ISI: 000375002600002OAI: oai:DiVA.org:su-127172DiVA: diva2:907246
Available from: 2016-02-26 Created: 2016-02-26 Last updated: 2016-06-07Bibliographically approved

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Ul Hassan, MahmoodStockhammar, Pär
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