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INCONSISTENT VAR REGRESSION WITH COMMON EXPLOSIVE ROOTS

Published online by Cambridge University Press:  16 January 2013

Peter C.B. Phillips  and
Tassos Magdalinos
Peter C.B. Phillips*
Affiliation:
Yale University, University of Auckland, University of Southampton, and Singapore Management University
Tassos Magdalinos
Affiliation:
University of Southampton
*
*Address correspondence to Peter Phillips, Cowles Foundation for Research in Economics, Yale University, Box 208281, New Haven, CT 06520-8281, USA; e-mail: peter.phillips@yale.edu..
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Abstract

Nielsen (Working paper, University of Oxford, 2009) shows that vector autoregression is inconsistent when there are common explosive roots with geometric multiplicity greater than unity. This paper discusses that result, provides a coexplosive system extension and an illustrative example that helps to explain the finding, gives a consistent instrumental variable procedure, and reports some simulations. Some exact limit distribution theory is derived and a useful new reverse martingale central limit theorem is proved.

Type
ARTICLES
Information
Econometric Theory , Volume 29 , Issue 4 , August 2013 , pp. 808 - 837
Copyright
Copyright © Cambridge University Press 2013 

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References

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