Aarhus University Seal / Aarhus Universitets segl

A Gaussian IV estimator of cointegrating relations

Research output: Working paperResearch

  • Gunnar Bårdsen, Norwegian University of Science and Technology, Trondheim, Norway
  • Niels Haldrup
  • Afdeling for Nationaløkonomi
In static single equation cointegration regression modelsthe OLS estimator will have a non-standard distribution unless regressors arestrictly exogenous. In the literature a number of estimators have been suggestedto deal with this problem, especially by the use of semi-nonparametricestimators. Theoretically ideal instruments can be defined to ensure a limitingGaussian distribution of IV estimators, but unfortunately such instruments areunlikely to be found in real data. In the present paper we suggest an IV estimatorwhere the Hodrick-Prescott filtered trends are used as instruments forthe regressors in cointegrating regressions. These instruments are almost idealand simulations show that the IV estimator using such instruments alleviatethe endogeneity problem extremely well in both finite and large samples.
Original languageEnglish
Number of pages19
Publication statusPublished - 2006

See relations at Aarhus University Citationformats

ID: 467327