Unit Roots In White Noise
We show that the empirical distribution of the roots of the vector autoregression (VAR) of order p fitted to T observations of a general stationary or nonstationary process converges to the uniform distribution over the unit circle on the complex plane, when both T and p tend to infinity so that (ln T )/ p → 0 and p 3/ T → 0. In particular, even if the process is a white noise, nearly all roots of the estimated VAR will converge by absolute value to unity. For fixed p , we derive an asymptotic approximation to the expected empirical distribution of the estimated roots as T → ∞. The approximation is concentrated in a circular region in the complex plane for various data generating processes and sample sizes.
Volume (Year): 28 (2012)
Issue (Month): 03 (June)
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