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Maximum Likelihood Estimation of the I(2) Model under Linear Restrictions

Jurgen Doornik

Econometrics, 2017, vol. 5, issue 2, 1-20

Abstract: Estimation of the I(2) cointegrated vector autoregressive (CVAR) model is considered. Without further restrictions, estimation of the I(1) model is by reduced-rank regression (Anderson (1951)). Maximum likelihood estimation of I(2) models, on the other hand, always requires iteration. This paper presents a new triangular representation of the I(2) model. This is the basis for a new estimation procedure of the unrestricted I(2) model, as well as the I(2) model with linear restrictions imposed.

Keywords: cointegration; I(2); vector autoregression; representation; maximum likelihood estimation; reduced rank regression; generalized least squares (search for similar items in EconPapers)
JEL-codes: B23 C C00 C01 C1 C2 C3 C4 C5 C8 (search for similar items in EconPapers)
Date: 2017
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