Stochastic cointegration: Estimation and inference

Abstract

This paper considers the estimation of a stochastically cointegrating regression within the stochastic cointegration modelling framework introduced in McCabe et al. (Stochastic cointegration: testing, 2001). A stochastic cointegrating regression allows some or all of the variables to be conventionally or heteroscedastically integrated. This generalizes Hansen's (J. Econom. 54 (1992) 139) heteroscedastic cointegrating regression model, where the dependent variable is heteroscedastically integrated, but all the regressor variables are restricted to being conventionally integrated. In contrast to conventional and heteroscedastic cointegrating regression, ordinary least-squares (OLS) estimation ..