FRB: Fully Modified Estimation With Nearly Integrated Regressors

International Finance Discussion Papers

Fully Modified Estimation With Nearly Integrated Regressors
Erik Hjalmarsson
2006-854 (January 2006)

Abstract: I show that the test procedure derived by Campbell and Yogo (2005, Journal of Financial Economics, forthcoming) for regressions with nearly integrated variables can be interpreted as the natural t-test resulting from a fully modified estimation with near-unit-root regressors. This clearly establishes the methods of Campbell and Yogo as an extension of previous unit-root results.

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Keywords
Fully modified estimation, Near-unit-roots, Predictive regressions

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Last update: March 22, 2006