Newey West Standard Error

Please see below my Newey West Standard Error. Somehow its not working as intendet but i have no clue why. The error message of Matlab does not really contain helpful advise.

Can anyone of you identify the error that i made in the Code?

The file should get X and g (145) from my main file. It always says that it might be unbalanced but i dont see any unbalanced term.

function HCsterr = HCse(resid,X,const)

[n,~] = size(X);

if const == 1
    X = [ones(n,1),X];
end

g = floor(4*(n/100)^(2/9));

R = sum( arrayfun( @(h) sum(X(h+1:n).*e(h+1:n).*e(1:n-h).*Xprime(1:n-h) + X(1:n-h).*e(1:n-h).e(h+1:n).*Xprime(h+1:n)) / (1 + h/(g+1), 1:g) ));

VCV = (X' * X)^(-1) * ((X' * diag(resid.^2) * X)+R) * (X' * X)^(-1);

% HCSE
HCsterr = sqrt(diag(VCV));

end

%

Answer 1

[Steven Lord]

I think you have a closing parenthesis in the wrong place. Look at the last piece of your longest line:

 (1 + h/(g+1), 1:g) ));

Look at this piece of that expression. It is enclosed in parentheses (two opening parentheses are matched by two closing parentheses) but it has a comma in the middle. Usually that pattern occurs when you're calling a function with two inputs, but in this case you're not. That's what has MATLAB confused.

 (1 + h/(g+1), 1:g)

I think you want this, with one of the parentheses moved from the end of the whole expression to right before 1:g.

 (1 + h/(g+1)), 1:g) );

The parentheses that moved ends the body of the anonymous function and the comma separates the two inputs to ARRAYFUN, leaving 1:g as the second input to ARRAYFUN. The parenthesis after 1:g ends the ARRAYFUN call, and the parenthesis at the end of the line (just before the semicolon) ends the SUM call.

Personally in this case I would probably turn that sum-of-arrayfun-of-sum into a simpler double FOR loop to increase readability and clarity. Without some (many) comments you may have trouble remembering what this is doing a week, a month, a year from now.

[Florian Fbr]

It seems like you are right with "(1 + h/(g+1)), 1:g) );" but now, if i try to run the Code it says "Error using HCse (line 30) Error: Functions cannot be indexed using {} or . indexing." Line 30 is R=...

Can you give me some help of how to Change it to an "if" term that it works.

[Walter Roberson]

Please show your current version of that line.

[Florian Fbr]

So if I run the my full Code and it refers to my Newey West test with:

NW = HCse(OLSAR2.Residuals.Raw,DTGDPt1t2,1)

Then the function runs which is:

function NW1 = HCse(resid,X,const)

[n,~] = size(X);

if const == 1
    X = [ones(n,1),X];
end

g = floor(4*(n/100)^(2/9));

R = sum( arrayfun( @(h) sum(X(h+1:n).*e(h+1:n).*e(1:n-h).*Xprime(1:n-h) + X(1:n-h).*e(1:n-h).e(h+1:n).*Xprime(h+1:n)) /  (1 + h/(g+1)), 1:g) );

VCV = (X' * X)^(-1) * ((X' * diag(resid.^2) * X)+R) * (X' * X)^(-1);

% HCSE
NW1 = sqrt(diag(VCV));

end

It says: Error using HCse (thats the Name of my function file (HCse.m) line 12 Error: Functions cannot be indexed using {} or . indexing

what shall i do ?!?! :/

[Walter Roberson]

X(1:n-h).*e(1:n-h).e(h+1:n).*Xprime(h+1:n) is missing a "*" before the second e()

[Florian Fbr]

Thanks!

Now it says: "Undefined function or variable "e"" in my main Code. I forgot to create a Matrix for my e, which are the residuals. The residuals are in "OLSAR2.Residuals.Raw" (in Main Code) but I guess it doesnt just work that i replace all my "e" in the function with "resid". Because when I do so, it says "Error using .* Matrix dimensions must agree".