Local Whittle Analysis of Stationary Unbalanced Fractional Cointegration Systems

Gilles de Truchis, Elena Ivona Dumitrescu and Florent Dubois

No 2019-15, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: In this paper we propose a local Whittle estimator of stationary bivariate unbalanced fractional cointegration systems. Unbalanced cointegration refers to the situation where the observables have different integration orders, but their filtered versions have equal integration orders and are cointegrated in the usual sense. Based on the frequency domain representation of the unbalanced version of Phillips’ triangular system, we develop a semiparametric approach to jointly estimate the unbalance parameter, the long run coefficient, and the integration orders of the regressand and cointegrating errors. The paper establishes the consistency and asymptotic normality of this estimator. We find a peculiar rate of convergence for the unbalance estimator (possibly faster than root-n) and a singular joint limiting distribution of the unbalance and long-run coefficients. Its good finite-sample properties are emphasized through Monte Carlo experiments. We illustrate the relevance of the developed estimator for financial data in an empirical application to the information flowing between the crude oil spot and CME-NYMEX markets.

Keywords: Unbalanced cointegration; Long memory; Stationarity; Local Whittle likelihood (search for similar items in EconPapers)
JEL-codes: C22 G10 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2019
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2019-15

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