Bias correcting adjustment coefficients in a cointegrated VAR with known cointegrating vectors |
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Authors: | Kees Jan van Garderen H Peter Boswijk |
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Institution: | 1. Amsterdam School of Economics, University of Amsterdam, Valckenierstraat 65–67, 1018 XE Amsterdam, The Netherlands;2. Tinbergen Institute, The Netherlands |
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Abstract: | The maximum likelihood estimator of the adjustment coefficient in a cointegrated vector autoregressive model (CVAR) is generally biased. For the case where the cointegrating vector is known in a first-order CVAR with no intercept, we derive a condition for the unbiasedness of the maximum likelihood estimator of the adjustment coefficients, and provide a simple characterization of the bias in case this condition is violated. A feasible bias correction method is shown to virtually eliminate the bias over a large part of the parameter space. |
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Keywords: | Cointegration Vector autoregression Bias correction |
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