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Inconsistent VAR Regression with Common Explosive Roots

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Abstract

Nielsen (2009) shows that vector autoregression is inconsistent when there are common explosive roots with geometric multiplicity greater than unity. This paper discusses that result, provides a co-explosive system extension and an illustrative example that helps to explain the finding, gives a consistent instrumental variable procedure, and reports some simulations. Some exact limit distribution theory is derived and a useful new reverse martingale central limit theorem is proved.

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File URL: http://cowles.econ.yale.edu/P/cd/d17b/d1777.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1777.

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Length: 32 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:cwl:cwldpp:1777

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

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Keywords: Co-explosive behavior; Common roots; Endogeneity; Forward instrumentation; Geometric multiplicity; Reverse martingale;

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