ON THE ROBUSTNESS OF HYPOTHESIS TESTING BASED ON FULLY MODIFIED VECTOR AUTOREGRESSION WHEN SOME ROOTS ARE ALMOST ONE
部分根接近一时完全修正 VAR 假设检验的稳健性
This paper proves that the fully modified vector autoregression (FM-VAR) estimator has second-order bias effects when some roots are local to unity. These bias effects are shown to result in potentially severe size distortions in FM-VAR testing when the hypothesis involves near unit root variables. In addition, the paper reveals that with the FM-VAR method near unit roots become estimated as exact unit roots with convergence speed faster than the order of the sample size.…