Function @residcov

[farrel]

Hi all,

I just curious why estimates of function @residcov differ from directly estimating covariance of residuals from drop menu? What is formula behind function @residcov?
Intuitively, I would say that estimates of function @residcov should be the same as if I would look at covariance analysis.

Namely, I have VAR model. I made covariance matrix from VAR model using @residcov. To check this result, then, I made group of residuals from VAR model, pressed VIEW, COVARIANCE ANALYSIS, Type: ORDINARY, checked COVARIANCE and pressed OK.
Matrix from @residcov differs from matrix obtained using COVARIANCE ANALYSIS (difference is not big).
But question is WHY????

Andrei

[EViews Gareth]

Different degrees of freedom. When you make a group of residuals, they are just series, EViews has no idea where they came from, so does the covariance analysis with standard dof. When you do it from within the VAR, EViews knows the residuals are from estimates and adjusts the dof accordingly.

[christine]

Hi there, could you please be more specific re the adjustment with dof that you are referring to above? I would assume that the covariance is calculated as (res'res)/(#observations-#parameters), but this doesn't match up with what Eviews gives me. Thanks!

[EViews Glenn]

Just to follow up, it's divided by the the d.f. where the correction uses the number of parameters in the individual equation of the VAR. This allows the computation to line up the diagonals with what you would get from equation by equation estimation. So 3 variable var with 4 lags and the constant would correct using #parameters=13.