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EFFICIENT DETRENDING IN COINTEGRATING REGRESSION

Published online by Cambridge University Press:  01 August 1999

Zhijie Xiao
Affiliation:
University of Illinois at Urbana-Champaign
Peter C.B. Phillips
Affiliation:
Cowles Foundation for Research in Economics, Yale University

Abstract

This paper studies efficient detrending in cointegrating regression and develops modified tests for cointegration that use efficient detrending procedures. Asymptotics for these tests are derived. Monte Carlo experiments are conducted to evaluate the detrending procedures in finite samples and to compare tests for cointegration based on different detrending procedures. The limit theory allows for increasingly remote initial condition effects as the sample size goes to infinity.

Type
Research Article
Copyright
© 1999 Cambridge University Press

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