Bias Correcting Adjustment Coefficients in a Cointegrated VAR with Known Cointegrating Vectors

UvA-Econometrics Discussion Paper 2013/05

9 Pages Posted: 28 Nov 2013

See all articles by Kees Jan van Garderen

Kees Jan van Garderen

University of Amsterdam - Department of Quantitative Economics (KE); University of Amsterdam - Faculty of Economics and Business (FEB); Tinbergen Institute; Tinbergen Institute

H. Peter Boswijk

Amsterdam School of Economics; Tinbergen Institute

Date Written: June 4, 2013

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.

Keywords: Cointegration, Vector autoregression, Bias correction

JEL Classification: C13, C32

Suggested Citation

van Garderen, K. J. and Boswijk, H. Peter, Bias Correcting Adjustment Coefficients in a Cointegrated VAR with Known Cointegrating Vectors (June 4, 2013). UvA-Econometrics Discussion Paper 2013/05, Available at SSRN: https://ssrn.com/abstract=2360522 or http://dx.doi.org/10.2139/ssrn.2360522

K. J. Van Garderen

University of Amsterdam - Department of Quantitative Economics (KE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

H. Peter Boswijk (Contact Author)

Amsterdam School of Economics ( email )

Roetersstraat 11
Amsterdam, North Holland 1018 WB
Netherlands

HOME PAGE: http://www.uva.nl/profile/h.p.boswijk

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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