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Efficiency Gains from Quasi-Differencing Under Nonstationarity

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Author Info
Peter C.B. Phillips () (Cowles Foundation, Yale University)
Chin Chin Lee (London School of Economics)

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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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Publisher Info
Paper provided by Cowles Foundation, 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

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  1. H.P. Boswijk & P.H. Franses, 2001. "Robust inference on average economic growth," Econometric Institute Report 252, Erasmus University Rotterdam, Econometric Institute. [Downloadable!]
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  2. Hyungsik R. Moon & Peter C.B. Phillips, 1999. "Estimation of Autoregressive Roots Near Unity Using Panel Data," Cowles Foundation Discussion Papers 1224, Cowles Foundation, Yale University. [Downloadable!]
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  3. Hyungsik Roger Moon & Peter C.B. Phillips, 2003. "GMM Estimation of Autoregressive Roots Near Unity with Panel Data," Cowles Foundation Discussion Papers 1390, Cowles Foundation, Yale University. [Downloadable!]
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  4. Hyungsik R. Moon & Peter C.B. Phillips, 1999. "Maximum Likelihood Estimation in Panels with Incidental Trends," Cowles Foundation Discussion Papers 1246, Cowles Foundation, Yale University. [Downloadable!]
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  5. J. Breitung, . "The Local Power of Some Unit Root Tests for Panel Data," Sonderforschungsbereich 373 1999-69, Humboldt Universitaet Berlin.
  6. Serena Ng & Timothy Vogelsang, 1999. "Forecasting Dynamic Time Series in the Presence of Deterministic Components," Boston College Working Papers in Economics 445, Boston College Department of Economics. [Downloadable!]
  7. Zhijie Xiao & Peter C.B. Phillips, 1997. "An ADF Coefficient Test for a Unit Root in ARMA Models of Unknown Order with Empirical Applications to the U.S. Economy," Cowles Foundation Discussion Papers 1161, Cowles Foundation, Yale University. [Downloadable!]
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  8. H. Peter Boswijk & Philip Hans Franses, 2002. "How Large is Average Economic Growth? Evidence from a Robust Method," Tinbergen Institute Discussion Papers 02-002/4, Tinbergen Institute. [Downloadable!]
  9. Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Nonstationary Panel Data Analysis: An Overview of Some Recent Developments," Cowles Foundation Discussion Papers 1221, Cowles Foundation, Yale University. [Downloadable!]
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  10. Peter C.B. Phillips & Zhijie Xiao, 1998. "A Primer on Unit Root Testing," Cowles Foundation Discussion Papers 1189, Cowles Foundation, Yale University. [Downloadable!]
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  11. Pierre Perron & Tomoyoshi Yabu, . "Estimating Deterministic Trends with an Integrated or Stationary Noise Component," Boston University - Department of Economics - Working Papers Series WP2006-012, Boston University - Department of Economics, revised Feb 2006. [Downloadable!]
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