Efficiency Gains from Quasi-Differencing Under Nonstationarity

Peter Phillips and Chin Chin Lee
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Chin Chin Lee: London School of Economics

No 1134, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: A famous theorem on trend removal by OLS regression (usually attributed to Grenander and Rosenblatt, 1957) gave conditions for the asymptotic equivalence of GLS and OLS in deterministic trend extraction. When a time series has trend components that are stochastically nonstationary, this asymptotic equivalence no longer holds. We consider models with integrated and near-integrated error processes where this asymptotic equivalence breaks down. In such models, the advantages of GLS can be achieved through quasi-differencing and we give an asymptotic theory of the relative gains that occur in deterministic trend extraction in such cases. Some differences between models with and without intercepts are explored.

Pages: 14 pages
Date: 1996-09
Note: CFP 936.
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Citations: View citations in EconPapers (21)

Published in P.M. Robinson and M. Rosenblatt, eds., Athens Conference on Applied Probability and Time Series, Vol. II, 1996, pp. 300-314

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