A limit theory is developed for multivariate regression in an explosive cointegrated system. The asymptotic behavior of the least squares estimator of the cointegrating coeﬀicients is found to depend upon the precise relationship between the explosive regressors. When the eigenvalues of the autoregressive matrix are distinct, the centered least squares estimator has an exponential rate of convergence and a mixed normal limit distribution. No central limit theory is applicable here and Gaussian innovations are assumed. On the other hand, when some regressors exhibit common explosive behavior, a diﬀerent mixed normal limiting distribution is derived with rate of convergence reduced to n^0.5. In the latter case, mixed normality applies without any distributional assumptions on the innovation errors by virtue of a Lindeberg type central limit theorem. Conventional statistical inference procedures are valid in this case, the stationary convergence rate dominating the behavior of the least squares estimator.
Phillips, Peter C.B. and Magdalinos, Tassos, "Limit Theory for Explosively Cointegrated Systems" (2007). Cowles Foundation Discussion Papers. 1910.