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Hi All,

I am runnig a AR - GARCH-M model of inflation and inflation uncertainty proxied by the errors of conditional mean ecuation.

The code is:


INFLATIE = C(1)*GARCH + C(2) + C(3)*INFLATIE(-1) + C(4)*DUMMY*INFLATIE(-1) + C(5)*INFLATIE(-2) + C(6)*INFLATIE(-4) + C(7)*INFLATIE(-6)

GARCH = C(8) + C(9)*RESID(-1)^2 + C(10)*GARCH(-1) + C(11)*INFLATIE(-1)

(inflatie=inflation)

The model runs perfect, but when i'm trying to conduct tests for errors anf coeffcients , Eviews says " Overflow". Why is this happening?

Can you help me please.

Thx in advance

Could you post the workfile?

Thx Gareth for the fast reply.

Attached you will find my workfile. The Garch model is named grach-m.

Thx,

It seems your model is ill-defined. The problem arises from the fact that the variance specification does not fulfill the stationarity condition (i.e. c(9)+c(10)<1). I can offer two solutions:
i) I do not think it is a good idea to include the lagged dependent variable as an exogenous variable in the variance equation, so it might be a better idea to drop it.
ii) If you want to keep the exogenous variable in the variance equation, try including the standard deviation instead of variance as the garch-in-mean specification.

Thx @trubador.

I will keep the lagged dependent variable of inflation because I am intending to test both influences bettwen inflation and its variance, in both directions.

I've changed the specifiaction to std dev and it works perfect.

Thx a lot :)

Since i've used std dev instead of variance in the mean equation Eviews showed me all the test that i needed, but still I have the stationarity problem and I really dont know how to solve it.

The coefficient restrictions c(9) + c(10) = 1 showes a p-value of ,8990 even after I've included std dev in the conditional mean.

How can I repair this stationarity problem?

Thx in advance