Maximum-Likelihood Estimation of Fractional Cointegration with an Application to U.S. and Canadian Bond Rates

Michael Dueker; Richard Startz

doi:10.1162/003465398557654

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Maximum-Likelihood Estimation of Fractional Cointegration with an Application to U.S. and Canadian Bond Rates

Michael Dueker¹; Richard Startz²

¹ Federal Reserve Bank of St. Louis · ² University of Washington

The Review of Economics and Statistics 1998

We estimate a multivariate ARFIMA model to illustrate a cointegration testing methodology based on joint estimates of the fractional orders of integration of a cointegrating vector and its parent series. Previous cointegration tests relied on a two-step testing procedure and maintained the assumption in the second step that the parent series were known to have a unit root. In our empirical example of fractional cointegration, we illustrate how uncertainty regarding the order of integration of the parent series can be even more important than uncertainty regarding the order of integration of the cointegrating vector when testing for cointegration.

DOI: 10.1162/003465398557654
Volume: 80 (3)
Pages: 420-426
Language: en
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