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Unit Roots and Cointegrating Matrix Estimation using Subspace Methods

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Author Info

  • Alfredo Garcia Hiernaux

    (Universidad Complutense de Madrid, Dpto. de Fundamentos del Análisis Económico II)

  • Miguel Jerez

    ()
    (Universidad Complutense de Madrid, Dpto. de Fundamentos del Análisis Económico II)

  • José Casals

    (Universidad Complutense de Madrid, Dpto. de Fundamentos del Análisis Económico II)

Abstract

We propose a new procedure to detect unit roots based on subspace methods. It has three main original features. First, the same method can be applied to single or multiple time series. Second, it employs a flexible family of information criteria, which loss functions can be adapted to the statistical properties of the data. Last, it does not require the specification of a stochastic process for the series analyzed. Also, we provide a consistent estimator of the cointegrating rank and the cointegrating matrix. Simulation exercises show that the procedure has good finite sample properties. An example illustrates its application to real time series.

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Bibliographic Info

Paper provided by Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales in its series Documentos del Instituto Complutense de Análisis Económico with number 0512.

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Length: 36 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:ucm:doicae:0512

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Related research

Keywords: State-space models; subspace methods; unit roots; cointegration.;

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References

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  1. Dietmar Bauer & Martin Wagner, 2000. "Estimating Cointegrated Systems Using Subspace Algorithms," Econometric Society World Congress 2000 Contributed Papers 0293, Econometric Society.
  2. Renato Flôres & Pierre-Yves Preumont & Ariane Szafarz, 1995. "Multivariate unit root tests," Working Papers CEB 95-001.RS, ULB -- Universite Libre de Bruxelles.
  3. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  4. Abuaf, Niso & Jorion, Philippe, 1990. " Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, vol. 45(1), pages 157-74, March.
  5. Carl Eckart & Gale Young, 1936. "The approximation of one matrix by another of lower rank," Psychometrika, Springer, vol. 1(3), pages 211-218, September.
  6. Phillips, P C B & Durlauf, S N, 1986. "Multiple Time Series Regression with Integrated Processes," Review of Economic Studies, Wiley Blackwell, vol. 53(4), pages 473-95, August.
  7. Poskitt, Don S, 2000. "Strongly Consistent Determination of Cointegrating Rank via Canonical Correlations," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(1), pages 77-90, January.
  8. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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