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|Title: ||Estimating Fractional Cointegration in the Presence of Polynomial Trends|
|Authors: ||Chen, Willa W.|
Hurvich, Clifford M.
|Keywords: ||Fractional cointegration|
|Issue Date: ||8-Oct-2002 |
|Publisher: ||Stern School of Business, New York University|
|Series/Report no.: ||SOR-2002-1|
|Abstract: ||We propose and derive the asymptotic distribution of a tapered
narrow-band least squares estimator (NBLSE) of the cointegration
parameter Î² in the framework of fractional cointegration.
This tapered estimator is invariant to deterministic polynomial trends.
In particular, we allow for arbitrary linear time trends that often
occur in practice. Our simulations show that, in the case of no
deterministic trends, the estimator is superior to ordinary least
squares (OLS) and the nontapered NBLSE proposed by P.M. Robinson when
the levels have a unit root and the cointegrating relationship between
the series is weak. In terms of rate of convergence, our estimator
converges faster under certain circumstances, and never slower, than
either OLS or the nontapered NBLSE. In a data analysis of interest
rates, we find stronger evidence of cointegration if the tapered NBLSE
is used for the cointegration parameter than if OLS is used.|
|Appears in Collections:||IOMS: Statistics Working Papers|
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