Functional-coefficient cointegrating regression with endogeneity

Hanying Liang, Yu Shen and Qiying Wang

Abstract

This paper explores nonparametric estimation of functional-coefficient cointegrating regression models where the structural equation errors are serially dependent and the regressor is endogenours. Generalizing earlier models of Wang and Phillips (2009b, 2016), the self-normalized local kernel and local linear estimators are shown to be asymptotic normal and to be pivotal upon an estimation of co-variances. Our new results open up inference by convenentional nonparametric methods to a wide class of potentially nonlinear cointgerated relations.

Keywords: Cointegration, nonparametric estimation, functional-coefficient model, endogeneity, kernel estimation, local linear estimation.

AMS Subject Classification: Primary 62G05;; secondary 62G08.