Power and bias of likelihood based inference in the cointegration model under fractional cointegration

Andersson, Michael K.Stockholm School of Economics,Handelshögskolan i Stockholm (author)

LIBRIS-ID:oai:hhs.se:1155097010006056
https://research.hhs.se/esploro/outputs/journalArticle/Power-and-bias-of-likelihood-based/991001480531206056URI
https://doi.org/10.1016/S0165-1765(99)00144-5DOI

Included in thesis: 1. On testing and forecasting in fractionally integrated time series models 2. Bootstrap inference in time series econometrics
This paper investigates how fractional cointegration affects the common maximum likelihood cointegration procedure. It is shown that the likelihood ratio test of no cointegration has considerable power against fractional alternatives. In contrast to the case of a cointegrated system, the usual maximum likelihood estimator gives severely biased estimates of the long-run relation under fractional cointegration. This suggests that the standard likelihood approach should be used with caution and that a test to separate fractionally cointegrated series from series that are cointegrated of an integer order should be executed prior to estimation.

Gredenhoff, Mikael P.Stockholm School of Economics,Handelshögskolan i Stockholm (author)
Handelshögskolan i StockholmStockholm School of Economics (creator_code:org_t)

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