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Band Spectral Regression with Trending Data

Author

Listed:
  • Dean Corbae

    (Dept. of Economics, University of Texas at Austin, U.S.A.)

  • Sam Ouliaris

    (School of Business, National University of Singapore and Research Dept., IMF, Washington DC, U.S.A.)

  • Peter C. B. Phillips

    (Cowles Foundation for Research in Economics, Yale University, U.S.A. and University of Auckland and University of York)

Abstract

Band spectral regression with both deterministic and stochastic trends is considered. It is shown that trend removal by regression in the time domain prior to band spectral regression can lead to biased and inconsistent estimates in models with frequency dependent coefficients. Both semiparametric and nonparametric regression formulations are considered, the latter including general systems of two-sided distributed lags such as those arising in lead and lag regressions. The bias problem arises through omitted variables and is avoided by careful specification of the regression equation. Trend removal in the frequency domain is shown to be a convenient option in practice. An asymptotic theory is developed and the two cases of stationary data and cointegrated nonstationary data are compared. In the latter case, a levels and differences regression formulation is shown to be useful in estimating the frequency response function at nonzero as well as zero frequencies. Copyright The Econometric Society 2002.

Suggested Citation

  • Dean Corbae & Sam Ouliaris & Peter C. B. Phillips, 2002. "Band Spectral Regression with Trending Data," Econometrica, Econometric Society, vol. 70(3), pages 1067-1109, May.
    • Handle: RePEc:ecm:emetrp:v:70:y:2002:i:3:p:1067-1109
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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