Estimating Deterministic Trends In The Presence Of Serially Correlated Errors
AbstractThis paper studies the problems of estimation and inference in the linear trend model y t = α + βt + u t, where u t follows an autoregressive process with largest root ρ and β is the parameter of interest. We contrast asymptotic results for the cases |ρ| < 1 and ρ = 1 and argue that the most useful asymptotic approximations obtain from modeling ρ as local to unity. Asymptotic distributions are derived for the OLS, first-difference, infeasible GLS, and three feasible GLS estimators. These distributions depend on the local-to-unity parameter and a parameter that governs the variance of the initial error term κ. The feasible Cochrane-Orcutt estimator has poor properties, and the feasible Prais-Winsten estimator is the preferred estimator unless the researcher has sharp a priori knowledge about ρ and κ. The paper develops methods for constructing confidence intervals for β that account for uncertainty in ρ and κ. We use these results to estimate growth rates for real per-capita GDP in 128 countries. Â© 1997 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
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Bibliographic InfoArticle provided by MIT Press in its journal The Review of Economics and Statistics.
Volume (Year): 79 (1997)
Issue (Month): 2 (May)
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Web page: http://mitpress.mit.edu/journals/
Other versions of this item:
- Eugene Canjels & Mark W. Watson, 1994. "Estimating deterministic trends in the presence of serially correlated errors," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago 94-19, Federal Reserve Bank of Chicago.
- Eugene Canjels & Mark W. Watson, 1994. "Estimating Deterministic Trends in the Presence of Serially Correlated Errors," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0165, National Bureau of Economic Research, Inc.
- 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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- Beach, Charles M & MacKinnon, James G, 1978. "A Maximum Likelihood Procedure for Regression with Autocorrelated Errors," Econometrica, Econometric Society, Econometric Society, vol. 46(1), pages 51-58, January.
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