Inconsistent VAR Regression with Common Explosive Roots

Peter Phillips and Tassos Magdalinos
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Tassos Magdalinos: University of Nottingham

No 1777, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Nielsen (2009) shows that vector autoregression is inconsistent when there are common explosive roots with geometric multiplicity greater than unity. This paper discusses that result, provides a co-explosive system extension and an illustrative example that helps to explain the finding, gives a consistent instrumental variable procedure, and reports some simulations. Some exact limit distribution theory is derived and a useful new reverse martingale central limit theorem is proved.

Keywords: Co-explosive behavior; Common roots; Endogeneity; Forward instrumentation; Geometric multiplicity; Reverse martingale (search for similar items in EconPapers)
JEL-codes: C22 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2011-01
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (2)

Published in Econometric Theory (August 2013), 29(4): 808-837

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Journal Article: INCONSISTENT VAR REGRESSION WITH COMMON EXPLOSIVE ROOTS (2013)
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