Integrated modified OLS estimation and fixed-b inference for cointegrating regressions
Timothy Vogelsang and
Martin Wagner
Journal of Econometrics, 2014, vol. 178, issue 2, 741-760
Abstract:
This paper is concerned with parameter estimation and inference in a cointegrating regression, where as usual endogenous regressors as well as serially correlated errors are considered. We propose a simple, new estimation method based on an augmented partial sum (integration) transformation of the regression model. The new estimator is labeled integrated modified ordinary least squares (IM-OLS). IM-OLS is similar in spirit to the fully modified OLS approach of Phillips and Hansen (1990) and also bears similarities to the dynamic OLS approach of Phillips and Loretan (1991), Saikkonen (1991) and Stock and Watson (1993), with the key difference that IM-OLS does not require estimation of long run variance matrices and avoids the need to choose tuning parameters (kernels, bandwidths, lags). Inference does require that a long run variance be scaled out, and we propose traditional and fixed-b methods for obtaining critical values for test statistics. The properties of IM-OLS are analyzed using asymptotic theory and finite sample simulations. IM-OLS performs well relative to other approaches in the literature.
Keywords: Bandwidth; Cointegration; Fixed-b asymptotics; FM-OLS; IM-OLS; Kernel (search for similar items in EconPapers)
JEL-codes: C12 C13 C32 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (24)
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Working Paper: Integrated Modified OLS Estimation and Fixed-b Inference for Cointegrating Regressions (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:178:y:2014:i:2:p:741-760
DOI: 10.1016/j.jeconom.2013.10.015
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