Integrated Modified OLS Estimation and Fixed-b Inference for Cointegrating Multivariate Polynomial Regressions

Timothy Vogelsang and Martin Wagner

No 53, IHS Working Paper Series from Institute for Advanced Studies

Abstract: This paper shows that the integrated modified OLS (IM-OLS) estimator developed for cointegrating linear regressions in Vogelsang and Wagner (2014a) can be straightforwardly extended to cointegrating multivariate polynomial regressions. These are regression models that include as explanatory variables deterministic variables, integrated processes and products of (non-negative) integer powers of these variables as regressors. The stationary errors are allowed to be serially correlated and the regressors are allowed to be endogenous. The IM-OLS estimator is tuningparameter free and does not require the estimation of any long-run variances. A scalar long-run variance, however, has to be estimated and scaled out when using IM-OLS for inference. In this respect, we consider both standard asymptotic inference as well as fixed-b inference. Fixed-b inference requires that the regression model is of full design. The results may be particularly interesting for specification testing of cointegrating relationships, with RESET-type specification tests following immediately. The simulation section also zooms in on RESET specification testing and illustrates that the performance of IM-OLS is qualitatively comparable to its performance in cointegrating linear regressions.

Keywords: Cointegration; fixed-b asymptotics; IM-OLS; multivariate polynomials; nonlinearity; RESET (search for similar items in EconPapers)
JEL-codes: C12 C13 C32 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2024-04
New Economics Papers: this item is included in nep-ecm
References: Add references at CitEc
Citations:

Downloads: (external link)
https://irihs.ihs.ac.at/id/eprint/6953 First version, 2024 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ihs:ihswps:53

Ordering information: This working paper can be ordered from
Institute for Advanced Studies - Library, Josefstädterstr. 39, A-1080 Vienna, Austria

Access Statistics for this paper

More papers in IHS Working Paper Series from Institute for Advanced Studies Josefstädterstr. 39, A-1080 Vienna, Austria. Contact information at EDIRC.
Bibliographic data for series maintained by Doris Szoncsitz ().