Econometric Society 57th European Meeting
25th August 2002 - 28th August 2002, Venice, Italy

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ANALYZING I(2) SYSTEMS BY TRANSFORMED VECTOR AUTOREGRESSIONS


Category: Econometrics
COINTEGRATION: ESTIMATION II
Tuesday 27th August 2002, 14:30 - 16:00, Room: 5.6
Session Chair(s): Hans Christian Kongsted, University of Copenhagen, DENMARK

Presenter(s): Kongsted, Hans Christian

Co-Author(s): Nielsen, Heino Bohn

Keyword(s): Cointegration, Common trend, Nonstationarity, Time Series, Unit root

JEL(s): C32, C51, C52

Abstract:

This paper derives the restrictions that apply to a transformed model obtained by a minimal I(2)-to-I(1) transformation. The relationship between the parameters of the I(2) vector autoregression and the transformed model is characterized, including the coefficients of polynomially cointegrating relationships. In a simulation experiment, unrestricted reduced rank regression in the transformed model, which is common in applied work, yields only a minor loss of efficiency compared to imposing the restrictions. A properly transformed vector autoregression thus provides a practical and effective means for inference on the parameters of the I(2) model.


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Paper Reference Number: 1621

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57th European Meeting
25th August 2002 - 28th August 2002, Venice, Italy

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