How to Estimate Autoregressive Roots Near Unity
A new model of near integration is formulated in which the local to unity parameter is identifiable and consistently estimable with time series data. The properties of the model are investigated, new functional laws for near integrated time series are obtained, and consistent estimators of the localizing parameter are constructed. The model provides a more complete interface between I(0) and I(1) models than the traditional local to unity model and leads to autoregressive coefficient estimates with rates of convergence that vary continuously between the O(/n) rate of stationary autoregression, the O(n) rate of unit root regression and the power rate of explosive autoregression. Models with deterministic trends are also considered, least squares trend regression is shown to be efficient, and consistent estimates of the localising parameter are obtained for this case as well. Conventional unit root tests are shown to be consistent against local alternatives in the new class.
|Date of creation:||Aug 1998|
|Date of revision:|
|Publication status:||Published in Econometric Theory (2001), 17(1): 29-59|
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|Order Information:|| Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA|
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