Inference on a Semiparametric Model with Global Power Law and Local Nonparametric Trends

55 Pages Posted: 20 Jul 2017

See all articles by Jiti Gao

Jiti Gao

Monash University - Department of Econometrics & Business Statistics

Oliver B. Linton

University of Cambridge

Bin Peng

University of Bath - Department of Economics

Date Written: July 17, 2017

Abstract

This paper studies a model with both a parametric global trend and a nonparametric local trend. This model may be of interest in a number of applications in economics, finance, ecology, and geology. The model nests the parametric global trend model considered in Phillips (2007) and Robinson (2012), and the nonparametric local trend model. We first propose two hypothesis tests to detect whether either of the special cases are appropriate. For the case where both null hypotheses are rejected, we propose an estimation method to capture both aspects of the time trend. We establish consistency and some distribution theory in the presence of a large sample. Moreover, we examine the proposed hypothesis tests and estimation methods through both simulated and real data examples. Finally, we discuss some potential extensions and issues when modelling time effects.

Keywords: Global Mean Sea Level; Nonparametric Kernel Estimation; Nonstationarity

JEL Classification: C14; C22; Q54

Suggested Citation

Gao, Jiti and Linton, Oliver B. and Peng, Bin, Inference on a Semiparametric Model with Global Power Law and Local Nonparametric Trends (July 17, 2017). Available at SSRN: https://ssrn.com/abstract=3003806 or http://dx.doi.org/10.2139/ssrn.3003806

Jiti Gao

Monash University - Department of Econometrics & Business Statistics ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia
61399031675 (Phone)
61399032007 (Fax)

HOME PAGE: http://www.jitigao.com

Oliver B. Linton (Contact Author)

University of Cambridge ( email )

Faculty of Economics
Cambridge, CB3 9DD
United Kingdom

Bin Peng

University of Bath - Department of Economics ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

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