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Integrated Modified OLS Estimation and Fixed-b Inference for Cointegrating Multivariate Polynomial Regressions
[working paper]
Corporate Editor
Institut für Höhere Studien (IHS), Wien
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 variable... view more
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.... view less
Keywords
regression
Classification
National Economy
Free Keywords
cointegration; fixed-b asymptotics; IM-OLS; multivariate polynomials; nonlinearity; RESET
Document language
English
Publication Year
2024
City
Wien
Page/Pages
35 p.
Series
IHS Working Paper, 53
Status
Published Version; reviewed