Efficiency Gains from Quasi-Differencing Under Nonstationarity
A famous theorem on trend removal by OLS regression (usually attributed to Grenander and Rosenblatt, 1957) gave conditions for the asymptotic equivalence of GLS and OLS in deterministic trend extraction. When a time series has trend components that are stochastically nonstationary, this asymptotic equivalence no longer holds. We consider models with integrated and near-integrated error processes where this asymptotic equivalence breaks down. In such models, the advantages of GLS can be achieved through quasi-differencing and we give an asymptotic theory of the relative gains that occur in deterministic trend extraction in such cases. Some differences between models with and without intercepts are explored.
|Date of creation:||Sep 1996|
|Publication status:||Published in P.M. Robinson and M. Rosenblatt, eds., Athens Conference on Applied Probability and Time Series, Vol. II, 1996, pp. 300-314|
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