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Efficiency Gains from Quasi-Differencing Under Nonstationarity

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Abstract

A famous theorem on trend removal by OLS regression (usually attributed to Grenander and Rosenblatt, 1957) gave conditions for the asymptotic equivalence of GLS and OLS in deterministic trend extraction. When a time series has trend components that are stochastically nonstationary, this asymptotic equivalence no longer holds. We consider models with integrated and near-integrated error processes where this asymptotic equivalence breaks down. In such models, the advantages of GLS can be achieved through quasi-differencing and we give an asymptotic theory of the relative gains that occur in deterministic trend extraction in such cases. Some differences between models with and without intercepts are explored.

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File URL: http://cowles.econ.yale.edu/P/cd/d11a/d1134.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1134.

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Length: 14 pages
Date of creation: Sep 1996
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Publication status: Published in P.M. Robinson and M. Rosenblatt, eds., Athens Conference on Applied Probability and Time Series, Vol. II, 1996, pp. 300-314
Handle: RePEc:cwl:cwldpp:1134

Note: CFP 936.
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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