NELSON AND PLOSSER REVISITED: EVIDENCE FROM FRACTIONAL ARIMA MODELS

Guglielmo Maria Caporale and Luis Gil-Alana

Economics and Finance Discussion Papers from Economics and Finance Section, School of Social Sciences, Brunel University

Abstract: In this paper fractionally integrated ARIMA (ARFIMA) models are estimated using an extended version of Nelson and Plosser’s (1982) dataset. The analysis employs Sowell’s (1992) maximum likelihood procedure. Such a parametric approach requires the model to be correctly specified in order for the estimates to be consistent. A model-selection procedure based on diagnostic tests on the residuals, together with several likelihood criteria, is adopted to determine the correct specification for each series. The results suggest that all series, except unemployment and bond yields, are integrated of order greater than one. Thus, the standard approach of taking first differences may result in stationary series with long memory behaviour.

Pages: 29 pages
Date: 2004-10
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Related works:
Working Paper: NELSON AND PLOSSER REVISITED: EVIDENCE FROM FRACTIONAL ARIMA MODELS (2004)
Working Paper: Nelson and Plosser Revisited: Evidence from Fractional Arima Models (1998)
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