A Gaussian IV estimator of cointegrating relations

Gunnar Bårdsen and Niels Haldrup ()

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: In static single equation cointegration regression models the OLS estimator will have a non-standard distribution unless regressors are strictly exogenous. In the literature a number of estimators have been suggested to deal with this problem, especially by the use of semi-nonparametric estimators. Theoretically ideal instruments can be defined to ensure a limiting Gaussian distribution of IV estimators, but unfortunately such instruments are unlikely to be found in real data. In the present paper we suggest an IV estimator where the Hodrick-Prescott filtered trends are used as instruments for the regressors in cointegrating regressions. These instruments are almost ideal and simulations show that the IV estimator using such instruments alleviate the endogeneity problem extremely well in both finite and large samples.

Keywords: Cointegration; Instrumental variables; Mixed Gaussianity. (search for similar items in EconPapers)
JEL-codes: C2 C22 C32 (search for similar items in EconPapers)
Pages: 19
Date: 2006-02-16
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (3)

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