Maximum-Likelihood Estimation Of Fractional Cointegration With An Application To U.S. And Canadian Bond Rates

Michael Dueker and Richard Startz

The Review of Economics and Statistics, 1998, vol. 80, issue 3, 420-426

Abstract: We estimate a multivariate ARFIMA model to illustrate a cointegration testing methodology based on joint estimates of the fractional orders of integration of a cointegrating vector and its parent series. Previous cointegration tests relied on a two-step testing procedure and maintained the assumption in the second step that the parent series were known to have a unit root. In our empirical example of fractional cointegration, we illustrate how uncertainty regarding the order of integration of the parent series can be even more important than uncertainty regarding the order of integration of the cointegrating vector when testing for cointegration. © 1998 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Date: 1998
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