Estimation and Inference in Time Series with Omitted I(1) Variables
AbstractStandard cointegration analysis yields spurious results when relevant I(1) variables are omitted from the model. As an alternative, an unobserved components approach is proposed where the error term is modelled as the sum of a transitory and a random walk component. The latter should capture omitted I(1) variables and is allowed to be correlated with the observed I(1) variables. Provided that the model is correctly specified and identified, the long-run relation between the non-cointegrated variables can be estimated consistently with maximum likelihood using the Kalman filter. The robustness of this approach to the integration properties of the error terms is supported for small samples via an extensive Monte Carlo study. The proposed methodology is applied to testing purchasing power parity.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by De Gruyter in its journal Journal of Time Series Econometrics.
Volume (Year): 2 (2011)
Issue (Month): 2 (January)
Contact details of provider:
Web page: http://www.degruyter.com
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- G. Everaert, 2012. "A Panel Analysis of the Fisher Effect with an Unobserved I(1) World Real Interest Rate," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/782, Ghent University, Faculty of Economics and Business Administration.
- Herzer, Dierk & Nunnenkamp, Peter, 2013.
"Private Donations, Government Grants, Commercial Activities, and Fundraising: Cointegration and Causality for NGOs in International Development Cooperation,"
Elsevier, vol. 46(C), pages 234-251.
- Dierk Herzer , Peter Nunnenkamp, 2012. "Private Donations, Government Grants, Commercial Activities, and Fundraising: Cointegration and Causality for NGOs in International Development Cooperation," Kiel Working Papers 1769, Kiel Institute for the World Economy.
- Herzer, Dierk & Strulik, Holger, 2013. "Religiosity and income: A panel cointegration and causality analysis," Center for European, Governance and Economic Development Research Discussion Papers 168, University of Goettingen, Department of Economics.
- Krenz, Astrid, 2013. "Political institutions and trade-evidence for the long-run relationship and causality," Center for European, Governance and Economic Development Research Discussion Papers 182, University of Goettingen, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.