Cointegrating Polynomial Regressions
AbstractThis paper develops a fully modified OLS estimator for cointegrating polynomial regressions, i.e. for regressions including deterministic variables, integrated processes and powers of integrated processes as explanatory variables and stationary errors. The errors are allowed to be serially correlated and the regressors are allowed to be endogenous. The paper thus extends the fully modified approach developed in Phillips and Hansen (1990). The FM-OLS estimator has a zero mean Gaussian mixture limiting distribution, which is the basis for standard asymptotic inference. In addition Wald and LM tests for specification as well as a KPSS-type test for cointegration are derived. The theoretical analysis is complemented by a simulation study which shows that the developed FM-OLS estimator and tests based upon it perform well in the sense that the performance advantages over OLS are by and large similar to the performance advantages of FM-OLS over OLS in cointegrating regressions.
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Bibliographic InfoPaper provided by Institute for Advanced Studies in its series Economics Series with number 264.
Length: 46 pages
Date of creation: Mar 2011
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Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-26 (All new papers)
- NEP-ECM-2011-03-26 (Econometrics)
- NEP-ETS-2011-03-26 (Econometric Time Series)
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.:
- Robert de Jong, 2004. "Nonlinear estimators with integrated regressors but without exogeneity," Econometric Society 2004 North American Winter Meetings 324, Econometric Society.
- Vanessa Berenguer Rico & Jesus Gonzalo, 2011. "Summability of stochastic processes: a generalization of integration and co-integration valid for non-linear processes," Economics Working Papers we1115, Universidad Carlos III, Departamento de Economía.
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