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Time Series Regression With a Unit Root and Infinite-Variance Errors

  • Phillips, P.C.B.

In [4] Chan and Tran give the limit theory for the least-squares coefficient in a random walk with i.i.d. (identically and independently distributed) errors that are in the domain of attraction of a stable law. This paper discusses their results and provides generalizations to the case of I (1) processes with weakly dependent errors whose distributions are in the domain of attraction of a stable law. General unit root tests are also studied. It is shown that the semiparametric corrections suggested by the author in other work [22] for the finite-variance case continue to work when the errors have infinite variance. Surprisingly, no modifications to the formulas given in [22] are required. The limit laws are expressed in terms of ratios of quadratic functional of a stable process rather than Brownian motion. The correction terms that eliminate nuisance parameter dependencies are random in the limit and involve multiple stochastic integrals that may be written in terms of the quadratic variation of the limiting stable process. Some extensions of these results to models with drifts and time trends are also indicated.

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

Volume (Year): 6 (1990)
Issue (Month): 01 (March)
Pages: 44-62

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Handle: RePEc:cup:etheor:v:6:y:1990:i:01:p:44-62_00
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  1. Peter C.B. Phillips & Bruce E. Hansen, 1988. "Statistical Inference in Instrumental Variables," Cowles Foundation Discussion Papers 869R, Cowles Foundation for Research in Economics, Yale University, revised Apr 1989.
  2. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
  3. Peter C.B. Phillips & Joon Y. Park, 1986. "Statistical Inference in Regressions with Integrated Processes: Part 1," Cowles Foundation Discussion Papers 811R, Cowles Foundation for Research in Economics, Yale University, revised Aug 1987.
  4. Park, Joon Y. & Phillips, Peter C.B., 1989. "Statistical Inference in Regressions with Integrated Processes: Part 2," Econometric Theory, Cambridge University Press, vol. 5(01), pages 95-131, April.
  5. Peter C.B. Phillips & Vassilis A. Hajivassiliou, 1987. "Bimodal t-Ratios," Cowles Foundation Discussion Papers 842, Cowles Foundation for Research in Economics, Yale University.
  6. Chan, Ngai Hang & Tran, Lanh Tat, 1989. "On the First-Order Autoregressive Process with Infinite Variance," Econometric Theory, Cambridge University Press, vol. 5(03), pages 354-362, December.
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