Optimal Inference in Cointegrated Systems
AbstractThis paper studies the properties of maximum likelihood estimates of co-integrated systems. Alternative formulations of such models are considered including a new triangular system error correction mechanism. It is shown that full system maximum likelihood brings the problem of inference within the family that is covered by the locally asymptotically mixed normal asymptotic theory provided that all unit roots in the system have been eliminated by specification and data transformation. This result has far reaching consequences. It means that cointegrating coefficient estimates are symmetrically distributed and median unbiased asymptotically, that an optimal asymptotic theory of inference applies and that hypothesis tests may be conducted using standard asymptotic chi-squared sets.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 866R.
Length: 28 pages
Date of creation: 1988
Date of revision: Aug 1989
Publication status: Published in Econometrica (March 1991), 59(2): 283-306
Note: CFP 777.
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Phone: (203) 432-3702
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Web page: http://cowles.econ.yale.edu/
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
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CORE Discussion Papers RP
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Cowles Foundation Discussion Papers
846, Cowles Foundation for Research in Economics, Yale University.
- Phillips, P.C.B., 1988. "Weak Convergence of Sample Covariance Matrices to Stochastic Integrals Via Martingale Approximations," Econometric Theory, Cambridge University Press, vol. 4(03), pages 528-533, December.
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"Forecasting and conditional projection using realistic prior distribution,"
93, Federal Reserve Bank of Minneapolis.
- Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc.
- Lahiri, Kajal & Schmidt, Peter, 1978. "On the Estimation of Triangular Structural Systems," Econometrica, Econometric Society, vol. 46(5), pages 1217-21, September.
- Sweeting, Trevor, 1983. "On estimator efficiency in stochastic processes," Stochastic Processes and their Applications, Elsevier, vol. 15(1), pages 93-98, June.
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