Moment Ratio estimation of autoregressive/unit root parameters and autocorrelation-consistent standard errors

J. Huston McCulloch

Computational Statistics & Data Analysis, 2016, vol. 100, issue C, 712-733

Abstract: A Moment Ratio estimator is proposed for an AR(p) model of the errors in an OLS regression, that provides standard errors with far less median bias and confidence intervals with far better coverage than conventional alternatives. A unit root, and therefore the absence of cointegration, does not necessarily mean that a correlation between the variables is spurious. The estimator is applied to a quadratic trend model of real GDP. The rate of change of GDP growth is negative with finite standard error but is insignificant. The “output gap,” often used as a guide to monetary policy, has an infinite standard error and is therefore a statistical illusion.

Keywords: Method of Moments; Autoregressive processes; Unit root processes; Regression errors; Consistent covariance matrix; Real GDP growth (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:csdana:v:100:y:2016:i:c:p:712-733

DOI: 10.1016/j.csda.2015.07.003

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