Functional coefficient cointegration models with Box–Cox transformation

Yingqian Lin and Yundong Tu

Economics Letters, 2024, vol. 234, issue C

Abstract: This paper considers a functional coefficient cointegration model where the dependent variable is subject to a Box–Cox transformation. A profile method is proposed to estimate the Box–Cox transformation parameter β0. We first approximate the functional coefficients by sieve method assuming that β0 is known. Then an extremum estimator of β0 is proposed based on a loss function which measures the relative variation of the regression residual compared to the variation in the transformed dependent variable. Finally, a plug-in estimator of the functional coefficients is obtained. Asymptotic properties of the proposed estimators are developed. Numerical results demonstrate the nice performance of the estimators and corroborate the theoretical development.

Keywords: Box–Cox transformation; Cointegration; Extremum estimation; Functional coefficient; Sieve method (search for similar items in EconPapers)
JEL-codes: C13 C22 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:234:y:2024:i:c:s0165176523004986

DOI: 10.1016/j.econlet.2023.111472

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