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Series Estimation of Stochastic Processes: Recent Developments and Econometric Applications

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Abstract

This paper overviews recent developments in series estimation of stochastic processes and some of their applications in econometrics. Underlying this approach is the idea that a stochastic process may under certain conditions be represented in terms of a set of orthonormal basis functions, giving a series representation that involves deterministic functions. Several applications of this series approximation method are discussed. The first shows how a continuous function can be approximated by a linear combination of Brownian motions (BMs), which is useful in the study of the spurious regressions. The second application utilizes the series representation of BM to investigate the effect of the presence of deterministic trends in a regression on traditional unit-root tests. The third uses basis functions in the series approximation as instrumental variables (IVs) to perform efficient estimation of the parameters in cointegrated systems. The fourth application proposes alternative estimators of long-run variances in some econometric models with dependent data, thereby providing autocorrelation robust inference methods in these models. We review some work related to these applications and some ongoing research involving series approximation methods.

Suggested Citation

  • Peter C.B. Phillips & Zhipeng Liao, 2012. "Series Estimation of Stochastic Processes: Recent Developments and Econometric Applications," Cowles Foundation Discussion Papers 1871, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:1871
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    References listed on IDEAS

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    1. Phillips, Peter C.B., 2005. "Hac Estimation By Automated Regression," Econometric Theory, Cambridge University Press, vol. 21(1), pages 116-142, February.
    2. Liao, Zhipeng & Phillips, Peter C. B., 2015. "Automated Estimation Of Vector Error Correction Models," Econometric Theory, Cambridge University Press, vol. 31(3), pages 581-646, June.
    3. Zou, Hui, 2006. "The Adaptive Lasso and Its Oracle Properties," Journal of the American Statistical Association, American Statistical Association, vol. 101, pages 1418-1429, December.
    4. Cheng, Xu & Phillips, Peter C.B., 2012. "Cointegrating rank selection in models with time-varying variance," Journal of Econometrics, Elsevier, vol. 169(2), pages 155-165.
    5. Sun, Yixiao, 2011. "Robust trend inference with series variance estimator and testing-optimal smoothing parameter," Journal of Econometrics, Elsevier, vol. 164(2), pages 345-366, October.
    6. Peter C. B. Phillips & Bruce E. Hansen, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(1), pages 99-125.
    7. Xiaohong Chen & . . & Yixiao Sun, 2012. "Sieve inference on semi-nonparametric time series models," CeMMAP working papers CWP06/12, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    8. Phillips, Peter C. B., 2002. "New unit root asymptotics in the presence of deterministic trends," Journal of Econometrics, Elsevier, vol. 111(2), pages 323-353, December.
    9. Phillips, P C B, 1991. "Optimal Inference in Cointegrated Systems," Econometrica, Econometric Society, vol. 59(2), pages 283-306, March.
    10. Phillips, P.C.B., 1989. "Partially Identified Econometric Models," Econometric Theory, Cambridge University Press, vol. 5(2), pages 181-240, August.
    11. Peter C. B. Phillips, 1998. "New Tools for Understanding Spurious Regressions," Econometrica, Econometric Society, vol. 66(6), pages 1299-1326, November.
    12. Xu Cheng & P eter C. B. Phillips, 2009. "Semiparametric cointegrating rank selection," Econometrics Journal, Royal Economic Society, vol. 12(s1), pages 83-104, January.
    13. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    14. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    15. Durlauf, Steven N & Phillips, Peter C B, 1988. "Trends versus Random Walks in Time Series Analysis," Econometrica, Econometric Society, vol. 56(6), pages 1333-1354, November.
    16. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    17. Werner Ploberger & Peter C. B. Phillips, 2003. "Empirical Limits for Time Series Econometric Models," Econometrica, Econometric Society, vol. 71(2), pages 627-673, March.
    18. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    19. Phillips, Peter C.B., 2007. "Unit root log periodogram regression," Journal of Econometrics, Elsevier, vol. 138(1), pages 104-124, May.
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    Cited by:

    1. Hwang, Jungbin & Sun, Yixiao, 2018. "SIMPLE, ROBUST, AND ACCURATE F AND t TESTS IN COINTEGRATED SYSTEMS," Econometric Theory, Cambridge University Press, vol. 34(5), pages 949-984, October.

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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