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Dynamic Seemingly Unrelated Cointegrating Regression

  • Nelson C. Mark
  • Masao Ogaki
  • Donggyu Sul

Multiple cointegrating regressions are frequently encountered in empirical work as, for example, in the analysis of panel data. When the equilibrium errors are correlated across equations, the seemingly unrelated regression estimation strategy can be applied to cointegrating regressions to obtain asymptotically ecient estimators. While non-parametric methods for seemingly unrelated cointegrating regressions have been proposed in the literature, in practice, specification of the estimation problem is not always straightforward. We propose Dynamic Seemingly Unrelated Regression (DSUR) estimators which can be made fully parametric and are computationally straightforward to use. We study the asymptotic and small sample properties of the DSUR estimators both for heterogeneous and homogenous cointegrating vectors. The estimation techniques are then applied to analyze two long-standing problems in international economics. Our first application revisits the issue of whether the forward exchange rate is an unbiased predictor of the future spot rate. Our second application revisits the problem of estimating long-run correlations between national investment and national saving.

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File URL: http://www.nber.org/papers/t0292.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0292.

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Date of creation: Apr 2003
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Publication status: published as Mark, Nelson C., Masao Ogaki and Donggyu Sul. "Dynamic Seemingly Unrelated Cointegrating Regressions," Review of Economic Studies, 2005, v72(252,Jul), 797-820.
Handle: RePEc:nbr:nberte:0292
Note: TWP
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  7. Maurice Obstfeld, 1985. "Capital Mobility in the World Economy: Theory and Measurement," NBER Working Papers 1692, National Bureau of Economic Research, Inc.
  8. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
  9. Peter C. B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Econometrica, Econometric Society, vol. 67(5), pages 1057-1112, September.
  10. Peter C. B. Phillips & Donggyu Sul, 2003. "Dynamic panel estimation and homogeneity testing under cross section dependence *," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 217-259, 06.
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