Transformation Models with Cointegrated and Deterministically Trending Regressors

Yingqian Lin and Yundong Tu

A chapter in Essays in Honor of Joon Y. Park: Econometric Theory, 2023, vol. 45A, pp 207-232 from Emerald Group Publishing Limited

Abstract: This chapter develops an asymptotic theory for a general transformation model with a time trend, stationary regressors, and unit root nonstationary regressors. This model extends that of Han (1987) to incorporate time trend and nonstationary regressors. When the transformation is specified as an identity function, the model reduces to the conventional cointegrating regression, possibly with a time trend and other stationary regressors, which has been studied in Phillips and Durlauf (1986) and Park and Phillips (1988, 1989). The limiting distributions of the extremum estimator of the transformation parameter and the plug-in estimators of other model parameters are found to critically depend upon the transformation function and the order of the time trend. Simulations demonstrate that the estimators perform well in finite samples.

Keywords: Cointegration; extremum estimation; nonlinear model; time trend; transformation model; unit root; C13; C22; C51 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-90532023000045a007

DOI: 10.1108/S0731-90532023000045A007

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