Estimation of the I(2) cointegrated vector autoregressive (CVAR) model is considered. Without further restrictions, estimation of the I(1) model is by reduced-rank regression (Anderson (1951)). Maximum likelihood estimation of I(2) models, on the other hand, always requires iteration. This paper presents a new triangular representation of the I(2) model. This is the basis for a new estimation procedure of the unrestricted I(2) model, as well as the I(2) model with linear restrictions imposed.
cointegration I(2) vector autoregression representation maximum likelihood estimation reduced rank regression generalized least squares