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Fractional Integration Methods and Short Time Series: Evidence from a Simulation Study

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  • Helgason, Agnar Freyr

Abstract

Grant and Lebo (2016) and Keele, Linn, and Webb (2016) provide diverging recommendations to analysts working with short time series that are potentially fractionally integrated. While Grant and Lebo are quite positive about the prospects of fractionally differencing such data, Keele, Linn, and Webb argue that estimates of fractional integration will be highly uncertain in short time series. In this study, I simulate fractionally integrated data and compare estimates from the general error correction model (GECM), which disregards fractional integration, to models using fractional integration methods over thirty-two simulation conditions. I find that estimates of short-run effects are similar across the two models, but that models using fractionally differenced data produce superior predictions of long-run effects for all sample sizes when there are no short-run dynamics included. When short-run dynamics are included, the GECM outperforms the alternative model, but only in time series that consist of under 250 observations.

Suggested Citation

  • Helgason, Agnar Freyr, 2016. "Fractional Integration Methods and Short Time Series: Evidence from a Simulation Study," Political Analysis, Cambridge University Press, vol. 24(1), pages 59-68, January.
  • Handle: RePEc:cup:polals:v:24:y:2016:i:1:p:59-68_6
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    Cited by:

    1. Clayton Webb & Suzanna Linn & Matthew J. Lebo, 2020. "Beyond the Unit Root Question: Uncertainty and Inference," American Journal of Political Science, John Wiley & Sons, vol. 64(2), pages 275-292, April.
    2. Piotr Gorzelanczyk & Henryk Tylicki, 2023. "Methodology for Optimizing Factors Affecting Road Accidents in Poland," Forecasting, MDPI, vol. 5(1), pages 1-15, March.
    3. Gorzelanczyk Piotr & Tylicki Henryk, 2023. "Forecasting the Number of Road Accidents in Poland Depending on the Day of the Week using Neural Networks," LOGI – Scientific Journal on Transport and Logistics, Sciendo, vol. 14(1), pages 35-42, January.

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