Journal of Economic Literature (JEL) Code(s)
This paper develops an asymptotic theory for near-integrated random processes and some associated regressions when the errors are tempered linear processes. Tempered processes are stationary time series that have a semi-long memory property in the sense that the autocovariogram of the process resembles that of a long memory model for moderate lags but eventually diminishes exponentially fast according to the presence of a decay factor governed by a tempering parameter. When the tempering parameter is sample size dependent, the resulting class of processes admits a wide range of behavior that includes both long memory, semi-long memory, and short memory processes. The paper develops asymptotic theory for such processes and associated regression statistics thereby extending earlier ﬁndings that fall within certain subclasses of processes involving near-integrated time series. The limit results relate to tempered fractional processes that include tempered fractional Brownian motion and tempered fractional diﬀusions. The theory is extended to provide the limiting distribution for autoregressions with such tempered near-integrated time series, thereby enabling analysis of the limit properties of statistics of particular interest in econometrics, such as unit root tests, under more general conditions than existing theory. Some extensions of the theory to the multivariate case are reported.
Sabzikar, Farzad; Wang, Qiying; and Phillips, Peter C.B., "Asymptotic Theory for Near Integrated Process Driven by Tempered Linear Process" (2018). Cowles Foundation Discussion Papers. 141.