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First Stage Estimation of Fractional Cointegration

Author

Listed:
  • Hualde Javier

    (Universidad Pública de Navarra)

  • Iacone Fabrizio

    (University of York)

Abstract

In a fractionally cointegrated model, we analyze, both theoretically and by means of a Monte Carlo experiment, the performance of the most popular first stage estimation methods, including ordinary and narrow band least squares (Robinson, 1994), difference taper narrow band least squares (Chen and Hurvich, 2003a), instrumental variables (Robinson and Gerolimetto, 2006), and compare it with the behavior of a new proposal, the integrated ordinary least squares. An appropriate version of this latter estimator (and also of the instrumental variables one) achieves in all circumstances the fastest convergence rate (among other first stage methods) and performs well in finite samples. The use of improved first stage methods is most important in cases of low collective memory of regressor and cointegrating error. This is particularly relevant in multivariate settings, where the key parameters which rule the convergence properties of the estimators are the memories of adjacent cointegrating subspaces.

Suggested Citation

  • Hualde Javier & Iacone Fabrizio, 2012. "First Stage Estimation of Fractional Cointegration," Journal of Time Series Econometrics, De Gruyter, vol. 4(1), pages 1-32, May.
  • Handle: RePEc:bpj:jtsmet:v:4:y:2012:i:1:n:2
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    References listed on IDEAS

    as
    1. Hualde, J. & Robinson, P.M., 2007. "Root-n-consistent estimation of weak fractional cointegration," Journal of Econometrics, Elsevier, vol. 140(2), pages 450-484, October.
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    Cited by:

    1. Marcel Aloy & Gilles Truchis, 2016. "Optimal Estimation Strategies for Bivariate Fractional Cointegration Systems and the Co-persistence Analysis of Stock Market Realized Volatilities," Computational Economics, Springer;Society for Computational Economics, vol. 48(1), pages 83-104, June.
    2. Javier Hualde & Fabrizio Iacone, 2015. "Autocorrelation robust inference using the Daniell kernel with fixed bandwidth," Discussion Papers 15/14, Department of Economics, University of York.
    3. Marcel Aloy & Gilles De Truchis, 2013. "Optimal Estimation Strategies for Bivariate Fractional Cointegration Systems," Working Papers halshs-00879522, HAL.
    4. Javier Hualde & Fabrizio Iacone, 2015. "Small-b and Fixed-b Asymptotics for Weighted Covariance Estimation in Fractional Cointegration," Journal of Time Series Analysis, Wiley Blackwell, vol. 36(4), pages 528-540, July.

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