“Linear” fully modified OLS estimation of cointegrating polynomial regressions
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Date
2016
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Abstract
A large part of the empirical environmental Kuznets curve literature uses cointegrating regressions
involving a unit root process and its powers as regressors. In this literature the unit root
process and its powers are, incorrectly, all treated as integrated processes and modified least
squares estimation methods for linear cointegrating regressions are routinely employed. We
show that this approach to estimation leads for the Fully Modified OLS estimator surprisingly
to the same limiting distribution as obtained for the version of the Fully Modified OLS estimator
adapted to the cointegrating polynomial regression setting of Wagner and Hong (2016).
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Keywords
cointegrating polynomial regression, nonlinearity, integrated process, fully modified OLS estimation, cointegration test, environmental Kuznets curve