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A Gaussian IV estimator of cointegrating relations

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  • Gunnar Bårdsen
  • Niels Haldrup

    ()
    (Department of Economics, University of Aarhus, Denmark)

Abstract

In static single equation cointegration regression models the OLS estimator will have a non-standard distribution unless regressors are strictly exogenous. In the literature a number of estimators have been suggested to deal with this problem, especially by the use of semi-nonparametric estimators. Theoretically ideal instruments can be defined to ensure a limiting Gaussian distribution of IV estimators, but unfortunately such instruments are unlikely to be found in real data. In the present paper we suggest an IV estimator where the Hodrick-Prescott filtered trends are used as instruments for the regressors in cointegrating regressions. These instruments are almost ideal and simulations show that the IV estimator using such instruments alleviate the endogeneity problem extremely well in both finite and large samples.

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2006-03.

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Length: 19
Date of creation: 16 Feb 2006
Date of revision:
Handle: RePEc:aah:aarhec:2006-03

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Web page: http://www.econ.au.dk/afn/

Related research

Keywords: Cointegration; Instrumental variables; Mixed Gaussianity.;

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References

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Cited by:
  1. Torfinn Harding & Frederick Ploeg, 2013. "Official forecasts and management of oil windfalls," International Tax and Public Finance, Springer, vol. 20(5), pages 827-866, October.

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