Bias Correcting Adjustment Coefficients in a Cointegrated VAR with Known Cointegrating Vectors
UvA-Econometrics Discussion Paper 2013/05
9 Pages Posted: 28 Nov 2013
Date Written: June 4, 2013
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.
Keywords: Cointegration, Vector autoregression, Bias correction
JEL Classification: C13, C32
Suggested Citation: Suggested Citation