Limit Theory For Explosively Cointegrated Systems
AbstractA limit theory is developed for multivariate regression in an explosive cointegrated system. The asymptotic behavior of the least squares estimator of the cointegrating coefficients is found to depend upon the precise relationship between the explosive regressors. When the eigenvalues of the autoregressive matrix are distinct, the centered least squares estimator has an exponential rate of convergence and a mixed normal limit distribution. No central limit theory is applicable here and Gaussian innovations are assumed. On the other hand, when some regressors exhibit common explosive behavior, a different mixed normal limiting distribution is derived with rate of convergence reduced to n^0.5. In the latter case, mixed normality applies without any distributional assumptions on the innovation errors by virtue of a Lindeberg type central limit theorem. Conventional statistical inference procedures are valid in this case, the stationary convergence rate dominating the behavior of the least squares estimator.
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Bibliographic InfoArticle provided by Cambridge University Press in its journal Econometric Theory.
Volume (Year): 24 (2008)
Issue (Month): 04 (August)
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Other versions of this item:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
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- B. Nielsen, 2009. "Test for cointegration rank in general vector autoregressions," Economics Papers 2009-W10, Economics Group, Nuffield College, University of Oxford.
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Cowles Foundation Discussion Papers
1777, Cowles Foundation for Research in Economics, Yale University.
- Phillips, Peter C.B. & Magdalinos, Tassos, 2013. "Inconsistent Var Regression With Common Explosive Roots," Econometric Theory, Cambridge University Press, vol. 29(04), pages 808-837, August.
- Bent Nielsen, 2008. "Singular vector autoregressions with deterministic terms: Strong consistency and lag order determination," Economics Series Working Papers 2008-W14, University of Oxford, Department of Economics.
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