HOW TO ESTIMATE AUTOREGRESSIVE ROOTS NEAR UNITY

Peter C. B. Phillips (), Hyungsik Roger Moon and Zhijie Xiao

Econometric Theory, 2001, vol. 17, issue 01, pages 29-69

Abstract: 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 that lead to mixed diffusion processes, 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 localizing parameter are obtained for this case also. Conventional unit root tests are shown to be consistent against local alternatives in the new class.

Date: 2001
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Related works:
Working Paper: How to Estimate Autoregressive Roots Near Unity
Working Paper: How to Estimate Autoregressive Roots Near Unity (1999)
Working Paper: How to Estimate Autoregressive Roots Near Unity (1998)
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