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Exact Local Whittle Estimation Of Fractional Integration With Unknown Mean And Time Trend

  • Shimotsu, Katsumi

Recently, Shimotsu and Phillips (2005, Annals of Statistics 33, 1890–1933) developed a new semiparametric estimator, the exact local Whittle (ELW) estimator, of the memory parameter ( d) in fractionally integrated processes. The ELW estimator has been shown to be consistent, and it has the same null asymptotic distribution for all values of d , if the optimization covers an interval of width less than 9/2 and the mean of the process is known. With the intent to provide a semiparametric estimator suitable for economic data, we extend the ELW estimator so that it accommodates an unknown mean and a polynomial time trend. We show that the two-step ELW estimator, which is based on a modified ELW objective function using a tapered local Whittle estimator in the first stage, has an null asymptotic distribution for null (or null when the data have a polynomial trend). Our simulation study illustrates that the two-step ELW estimator inherits the desirable properties of the ELW estimator.

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Article provided by Cambridge University Press in its journal Econometric Theory.

Volume (Year): 26 (2010)
Issue (Month): 02 (April)
Pages: 501-540

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Handle: RePEc:cup:etheor:v:26:y:2010:i:02:p:501-540_10
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