Dear Gretl community,

 

I am working with a VAR in which one of my endogenous variables is a generated regressor. Specifically, I have estimated a time-varying volatility measure from an EGarch model, and I'm using this mesure to investigate the effects of volatility shocks.

 

I'm fully aware that alternative (and more fancy) econometric models  would do better than this 2-step procedure. Also because the estimated volatility belongs to another endogenous VAR variable. However, ignoring this fact, my question is whether gretl provides an option to account for this measurement error problem when estimating a simple linear VAR system.

 

I had a look at Murphy and Topel's (1985) paper, and also tried to find other references on how to correct the potential bias, but the solution is not clear to me yet. I would appreciate any comments and suggestions on this issue.

 

Thanks a lot,

Gabriela