On Sat, 19 Dec 2015, Saba Sehrish via R-help wrote:
Hi I am using NeweyWest standard errors to correct lm( ) output. For example:
lm(A~A1+A2+A3+A4+A5+B1+B2+B3+B4+B5)
vcovNW<-NeweyWest(lm(A~A1+A2+A3+A4+A5+B1+B2+B3+B4+B5))
I am using package(sandwich) for NeweyWest. Now when I run this command, it
gives following error:
Error in solve.default(diag(ncol(umat)) - apply(var.fit$ar, 2:3, sum)) :system
is computationally singular: reciprocal condition number = 7.49468e-18
Attached herewith is data for A&B, A1,A2,A3,A4,A5,B1,B2,B3,B4,B5 are
simply lag variables. Can you help me removing this error please?
Without trying to replicate the error, there are at least two issues:
(1) You should scale your data to use more reasonable orders of magnitude,
e.g., in millions. This will help avoiding numerical problems.
(2) More importantly, you should not employ HAC/Newey-West standard errors
in autoregressive models. If you use an autoregressive specification, you
should capture all relevant autocorrelations - and then no HAC estimator
is necessary. Alternatively, one may treat autocorrelation as a nuisance
parameter and not model it - but instead capture it in HAC standard
errors. Naturally, the former strategy will typically perform better if
the autocorrelations are more substantial.
Saba
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