TEMPORAL AGGREGATION AND THE FINITE SAMPLE PERFORMANCE OF SPECTRAL REGRESSION ESTIMATORS IN COINTEGRATED SYSTEMS

Marcus J. Chambers

Econometric Theory, 2001, vol. 17, issue 03, pages 591-607

Abstract: The finite sample performance of spectral regression estimators in temporally aggregated cointegrated systems is investigated via the use of simulation experiments. The simulations address issues such as optimal choice of bandwidth parameter and effects of smoothing kernel in constructing estimates of spectral densities that are used by the spectral regression estimators; the effects of stock and flow variables and mixtures of the two, including the relative finite sample efficiency of the estimators under different combinations of stock and flow variables; and the effects of conducting iterations of the spectral estimators. A striking feature of the results is the crucial role that correct choice of bandwidth and kernel function plays in producing accurate estimates of the unknown parameters. Furthermore, estimates obtained using flow data alone are found to be more efficient, in the sense of having smaller variance, than those obtained using stock data alone or mixtures of stocks and flows, thereby confirming in finite samples their relative asymptotic properties.

Date: 2001
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