Robustness of residual-based bootstrap to the composition of serially correlated errors

Abstract

In a simple autoregressive model with serially correlated errors, we evaluate size distortions resulting from the residual bootstrap when the Wold innovation is serially dependent and hence is expected to contaminate the inference. The small distortions caused by the presence of strong conditional heteroskedasticity or other nonlinearities can be partly removed further by using the wild bootstrap.

Keywords:

• residual bootstrap
• wild bootstrap
• serial correlation
• rejection rate

Acknowledgements

I thank Alexander Malyi for research assistance, and the referees for their interesting suggestions.