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Maximum-Likelihood Estimation Of Fractional Cointegration With An Application To U.S. And Canadian Bond Rates

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Michael Dueker
Richard Startz

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Abstract

We estimate a multivariate ARFIMA model to illustrate a cointegration testing methodology based on joint estimates of the fractional orders of integration of a cointegrating vector and its parent series. Previous cointegration tests relied on a two-step testing procedure and maintained the assumption in the second step that the parent series were known to have a unit root. In our empirical example of fractional cointegration, we illustrate how uncertainty regarding the order of integration of the parent series can be even more important than uncertainty regarding the order of integration of the cointegrating vector when testing for cointegration. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog

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Publisher Info
Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 80 (1998)
Issue (Month): 3 (August)
Pages: 420-426
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Handle: RePEc:tpr:restat:v:80:y:1998:i:3:p:420-426

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  1. Hurvich, Cliiford & Wang, Yi, 2006. "A Pure-Jump Transaction-Level Price Model Yielding Cointegration, Leverage, and Nonsynchronous Trading Effects," MPRA Paper 1413, University Library of Munich, Germany. [Downloadable!]
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  2. Katarzyna Lasak, 2008. "Maximum likelihood estimation of fractionally cointegrated systems," CREATES Research Papers 2008-53, School of Economics and Management, University of Aarhus. [Downloadable!]
  3. Luis A. Gil-Alana, 2004. "Fractional cointegration in the consumption and income relationship using semiparametric techniques," Economics Bulletin, Economics Bulletin, vol. 3(47), pages 1-8. [Downloadable!]
  4. Katsumi Shimotsu & Morten Ørregaard Nielsen, 2006. "Determining the Cointegrating Rank in Nonstationary Fractional Systems by the Exact Local Whittle Approach," Working Papers 1029, Queen's University, Department of Economics. [Downloadable!]
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  5. Aaron Smallwood, 2004. "Joint Tests for Long Memory and Non-linearity: The Case of Purchasing Power Parity," Computing in Economics and Finance 2004 23, Society for Computational Economics. [Downloadable!]
  6. Howard Michael, 2002. "Causality Between Exports, Imports and Income In Trinidad and Tobago," International Economic Journal, Korean International Economic Association, vol. 16(4), pages 97-106, December. [Downloadable!] (restricted)
  7. J. Breitung & U. Hassler, . "Inference on the Cointegration Rank in Fractionally Integrated Processes," Sonderforschungsbereich 373 2000-65, Humboldt Universitaet Berlin.
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  8. Morten Oerregaard Nielsen, . "Optimal Residual Based Tests for Fractional Cointegration and Exchange Rate Dynamics," Economics Working Papers 2002-7, School of Economics and Management, University of Aarhus. [Downloadable!]
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  9. Basma Bekdache & Christopher F. Baum, 2000. "A re-evaluation of empirical tests of the Fisher hypothesis," Boston College Working Papers in Economics 472, Boston College Department of Economics. [Downloadable!]
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  10. Bent Jesper Christensen & Morten Ø. Nielsen, . "Semiparametric Analysis of Stationary Fractional Cointegration and the Implied-Realized Volatility Relation in High-Frequency Options Data," Economics Working Papers 2001-4, School of Economics and Management, University of Aarhus. [Downloadable!]
  11. Jurgen A. Doornik & Marius Ooms, 2001. "Computational Aspects of Maximum Likelihood Estimation of Autoregressive Fractionally Integrated Moving Average Models," Economics Papers 2001-W27, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
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  12. Katarzyna Lasak, 2008. "Likelihood based testing for no fractional cointegration," CREATES Research Papers 2008-52, School of Economics and Management, University of Aarhus. [Downloadable!]
  13. Morten Oerregaard Nielsen, . "Local Whittle Analysis of Stationary Fractional Cointegration," Economics Working Papers 2002-8, School of Economics and Management, University of Aarhus. [Downloadable!]
  14. Gael Martin, 2001. "Bayesian Analysis Of A Fractional Cointegration Model," Econometric Reviews, Taylor and Francis Journals, vol. 20(2), pages 217-234. [Downloadable!] (restricted)
  15. Uwe Hassler & Francesc Marmol & Carlos Velasco, 2002. "Residual Log-Periodogram Inference for Long-Run Relationships," Darmstadt Discussion Papers in Economics 115, Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology). [Downloadable!]
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  16. Margherita Gerolimetto & Isabella Procidano, 2008. "A test for fractional cointegration using the sieve bootstrap," Statistical Methods and Applications, Springer, vol. 17(3), pages 373-391, July. [Downloadable!] (restricted)
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