Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/188902
Authors: 
Cavaliere, Giuseppe
Nielsen, Morten Ørregaard
Taylor, A.M. Robert
Year of Publication: 
2017
Series/Report no.: 
Queen's Economics Department Working Paper 1390
Abstract: 
We consider estimation and inference in fractionally integrated time series models driven by shocks which can display conditional and unconditional heteroskedasticity of unknown form. Although the standard conditional sum-of-squares (CSS) estimator remains consistent and asymptotically normal in such cases, unconditional heteroskedasticity inflates its variance matrix by a scalar quantity, lambda>1, thereby inducing a loss in efficiency relative to the unconditionally homoskedastic case, lambda=1. We propose an adaptive version of the CSS estimator, based on non-parametric kernel-based estimation of the unconditional variance process. This eliminates the factor lambda from the variance matrix, thereby delivering the same asymptotic efficiency as that attained by the standard CSS estimator in the unconditionally homoskedastic case and, hence, asymptotic efficiency under Gaussianity. The asymptotic variance matrices of both the standard and adaptive CSS estimators depend on any conditional heteroskedasticity and/or weak parametric autocorrelation present in the shocks. Consequently, asymptotically pivotal inference can be achieved through the development of confidence regions or hypothesis tests using either heteroskedasticity robust standard errors and/or a wild bootstrap. Monte Carlo simulations and empirical applications are included to illustrate the practical usefulness of the methods proposed.
Subjects: 
adaptive estimation
conditional sum-of-squares
fractional integration
heteroskedasticity
quasi-maximum likelihood estimation
wild bootstrap
JEL: 
C12
C13
C22
Document Type: 
Working Paper
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