ROOT-N-CONSISTENT ESTIMATION OF WEAKFRACTIONAL COINTEGRATION

Javier Hualde and Peter M Robinson

STICERD - Econometrics Paper Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE

Abstract: Empirical evidence has emerged of the possibility of fractional cointegration such that thegap, ß, between the integration order d of observable time series, and the integrationorder ? of cointegrating errors, is less than 0.5. This includes circumstances whenobservables are stationary or asymptotically stationary with long memory (so d < 1/2),and when they are nonstationary (so d 1/2). This "weak cointegration" contrastsstrongly with the traditional econometric prescription of unit root observables and shortmemory cointegrating errors, where ß = 1. Asymptotic inferential theory also differs fromthis case, and from other members of the class ß > 1/2, in particular=consistent - n andasymptotically normal estimation of the cointegrating vector ? is possible when ß < 1/2,as we explore in a simple bivariate model. The estimate depends on ? and d or, morerealistically, on estimates of unknown ? and d. These latter estimates need to beconsistent - n , and the asymptotic distribution of the estimate of ? is sensitive to theirprecise form. We propose estimates of ? and d that are computationally relativelyconvenient, relying on only univariate nonlinear optimization. Finite sample performanceof the methods is examined by means of Monte Carlo simulations, and severalapplications to empirical data included.

Keywords: Fractional cointegration; Parametric estimation; Asymptotic normality. (search for similar items in EconPapers)
JEL-codes: C32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2006-03
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Related works:
Journal Article: Root-n-consistent estimation of weak fractional cointegration (2007)
Working Paper: ROOT-N-CONSISTENT ESTIMATION OF WEAKFRACTIONAL COINTEGRATION (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:cep:stiecm:/2006/499

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