Instrumental Variable Interpretation Of Cointegration With Inference Results For Fractional Cointegration
AbstractIn this paper we propose an alternative characterization of the central notion of cointegration, exploiting the relationship between the autocovariance and the cross-covariance functions of the series. This characterization leads us to propose a new estimator of the cointegrating parameter based on the instrumental variables (IV) methodology. The instrument is a delayed regressor obtained from the conditional bivariate system of nonstationary fractionally integrated processes with a weakly stationary error correction term. We prove the consistency of this estimator and derive its limiting distribution. We also show that, in the I(1) case, with a semiparametric correction simpler than the one required for the fully modified ordinary least squares (FM-OLS), our fully modified instrumental variables (FM-IV) estimator is median-unbiased, a mixture of normals, and asymptotically efficient. As a consequence, standard inference can be conducted with this new FM-IV estimator of the cointegrating parameter. We show by the use of Monte Carlo simulations that the small sample gains with the new IV estimator over OLS are remarkable.
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Bibliographic InfoArticle provided by Cambridge University Press in its journal Econometric Theory.
Volume (Year): 18 (2002)
Issue (Month): 03 (June)
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Other versions of this item:
- Mármol, Francesc & Escribano, Álvaro & Aparicio, Felipe M., 2002. "Instrumental Variable Interpretation of Cointegration with Inference Results for Fractional Cointegration," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/2567, Universidad Carlos III de Madrid.
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- Escribano, Álvaro & Santos, T. & Sipols, Ana E., 2008.
"Testing for cointegration using induced-order statistics,"
Open Access publications from Universidad Carlos III de Madrid
info:hdl:10016/2585, Universidad Carlos III de Madrid.
- Alvaro Escribano & M. Santos & Ana Sipols, 2008. "Testing for cointegration using induced-order statistics," Computational Statistics, Springer, vol. 23(1), pages 131-151, January.
- P. M. Robinson & M. Gerolimetto, 2006.
"Instrumental variables estimation of stationary and non-stationary cointegrating regressions,"
Royal Economic Society, vol. 9(2), pages 291-306, 07.
- M. Gerolimetto & Peter M Robinson, 2006. "Instrumental Variables Estimation of Stationaryand Nonstationary Cointegrating Regressions," STICERD - Econometrics Paper Series /2006/500, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Mauro Costantini & Roy Cerqueti, 2007. "Non parametric Fractional Cointegration Analysis," ISAE Working Papers 78, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
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