[Gretl-users] The constant in the mean equation of ARCH/GARCH

[Riccardo (Jack) Lucchetti]

On Thu, 18 Oct 2007, yinung CYCU wrote:

> Dear all,
>
> I am using gretl 1.6.6 now. It seems that the constant term in the
> mean equation of ARCH/GARCH estimation is automatically added though
> the default function by click \Model\Time series\ARCH or GARCH looks
> that the const as a independant variable can be removed.
>
> Is it required to have a constant term in the mean equation of
> ARCH/GARCH? Is it possible to remove the constant term in the mean
> equation with ARCH/GARCH estimation?
>
> Thanks
>

While in principle it's perfectly legitimate to estimate a garch model 
without a mean equation, this is not possible at present in gretl via the 
"garch" command. In order to ensure that this requirement is fulfilled, 
the inclusion of a constant in the mean equation is presently hardwired.

The source would have to be modified quite substantially to accommodate 
models with no mean equation; on the other hand, if one wanted to estimate 
models with exogenous variables other than the constant in the mean 
equation, the amount of work required would be much less and probably 
doable in a shorter timespan.

However, we're very close to releasing 1.6.6 and I don't think it would be 
wise to embark in such a project right now, also considering that 
substantial enhancements to the garch code are planned for the future 
anyway. Of course, this is open source, so if you feel like writing some C 
code yourself, feel free to ask for help.

In the meantime, if you absolutely need this, you can always use the mle 
command (suboptimal but reliable).



Riccardo (Jack) Lucchetti
Dipartimento di Economia
Università Politecnica delle Marche

r.lucchetti at univpm.it
http://www.econ.univpm.it/lucchetti