Advanced Search
MyIDEAS: Login to save this paper or follow this series

Maximum-likelihood estimation of fractional cointegration with application to the short end of the yield curve

Contents:

Author Info

  • Michael Dueker
  • Richard Startz

Abstract

We estimate a multivariate autoregressive fractionally-integrated moving-average (ARFIMA) model to illustrate a cointegration testing methodology based on joint estimates of the fractional orders of integration of a cointegrating vector and its parent series. Although previous work has recognized that deviations from long-run relationships could exhibit long memory and go undetected in traditional 1(1)/i (0) cointegration analysis, previous tests for fractional cointegration relied on a two-step testing procedure and maintained the assumption in the second step that the parent series were known to have a unit root. In our example of fractional cointegration between 10-year government bond rates in the United States and Canada, we illustrate how uncertainty regarding the order of integration of the parent series can be even more important than uncertainty regarding the order of integration of the cointegrating vector when conducting a test for cointegration based on joint estimates. For this reason, the cointegration test based on joint estimates is less likely to reject the null of no cointegration and ought to have better size properties.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://research.stlouisfed.org/wp/more/1994-027/
Download Restriction: no

File URL: http://research.stlouisfed.org/wp/1994/94-027.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1994-027.

as in new window
Length:
Date of creation: 1997
Date of revision:
Publication status: Published in Review of Economics and Statistics, August 1998
Handle: RePEc:fip:fedlwp:1994-027

Contact details of provider:
Postal: P.O. Box 442, St. Louis, MO 63166
Fax: (314)444-8753
Web page: http://www.stlouisfed.org/
More information through EDIRC

Order Information:
Email:

Related research

Keywords: Cointegration ; Regression analysis;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
  2. Cheung, Yin-Wong & Lai, Kon S, 1993. "A Fractional Cointegration Analysis of Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 11(1), pages 103-12, January.
  3. Andrew W. Lo & A. Craig MacKinlay, 1989. "When are Contrarian Profits Due to Stock Market Overreaction?," NBER Working Papers 2977, National Bureau of Economic Research, Inc.
  4. Baillie, R.T. & Bollerslev, T., 1993. "The Long Memory of the Foreward Premium," Papers, Michigan State - Econometrics and Economic Theory 9203, Michigan State - Econometrics and Economic Theory.
  5. Sowell, Fallaw, 1992. "Modeling long-run behavior with the fractional ARIMA model," Journal of Monetary Economics, Elsevier, Elsevier, vol. 29(2), pages 277-302, April.
  6. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 1057-72, June.
  7. David K. Backus, 1993. "Long-Memory Inflation Uncertainty: Evidence from the Term Structure of Interest Rates," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 93-04, New York University, Leonard N. Stern School of Business, Department of Economics.
  8. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, Econometric Society, vol. 59(6), pages 1551-80, November.
  9. Baillie, R.T. & Bollerslev, T., 1993. "Cointegration, Fractional Cointegration, and Exchange RAte Dynamics," Papers, Michigan State - Econometrics and Economic Theory 9103, Michigan State - Econometrics and Economic Theory.
  10. Sowell, Fallaw, 1992. "Maximum likelihood estimation of stationary univariate fractionally integrated time series models," Journal of Econometrics, Elsevier, Elsevier, vol. 53(1-3), pages 165-188.
  11. Shea, Gary S, 1991. "Uncertainty and Implied Variance Bounds in Long-Memory Models of the Interest Rate Term Structure," Empirical Economics, Springer, Springer, vol. 16(3), pages 287-312.
  12. Baillie, Richard T., 1996. "Long memory processes and fractional integration in econometrics," Journal of Econometrics, Elsevier, Elsevier, vol. 73(1), pages 5-59, July.
  13. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 251-76, March.
  14. Cheung, Yin-Wong, 1993. "Long Memory in Foreign-Exchange Rates," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 11(1), pages 93-101, January.
  15. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Sandrine Lardic & Valérie Mignon, 2003. "Cointégration fractionnaire entre la consommation et le revenu," Économie et Prévision, Programme National Persée, vol. 158(2), pages 123-142.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedlwp:1994-027. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Xiao).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.