The Impact of Integrated Measurement Errors on Modelling Long-run Macroeconomic Time Series

James Duffy and David Hendry

No 818, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: Abstract Data spanning long time periods, such as that over 1860–2012 for the UK, seem likely to have substantial errors of measurement that may even be integrated of order one, but which are probably cointegrated for cognate variables. We analyze and simulate the impacts of such measurement errors on parameter estimates and tests in a bivariate cointegrated system with trends and location shifts which reflect the many major turbulent events that have occurred historically. When trends or shifts therein are large, cointegration analysis is not much affected by such measurement errors, leading to conventional stationary attenuation biases dependent on the measurement-error variance, unlike the outcome when there are no offsetting shifts or trends.

Keywords: Integrated Measurement Errors; Location Shifts; Long-run Data; Cointegration (search for similar items in EconPapers)
JEL-codes: C22 C51 (search for similar items in EconPapers)
Date: 2017-01-17
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (10)

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Journal Article: The impact of integrated measurement errors on modeling long-run macroeconomic time series (2017)
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