Band Spectrum Regressions Using Wavelet Analysis
Source: Lund University
In economics it is common to distinguish between different time horizons (i.e. short run, medium run, and long run). Engle (1974) proposed combining the discrete Fourier transform with a band spectrum regression to estimate models that separates between different time horizons. In this paper, the authors discuss possibilities and challenges using the maximal overlap discrete wavelet transform instead of the Fourier transform when estimating band spectrum regressions. In economics in general and in macroeconomics in particular, it is common to distinguish between different time horizons.