van Garderen, K.J. and Boswijk, H. (2014). Bias correcting adjustment coefficients in a cointegrated VAR with known cointegrating vectors Economics Letters, 122(2):224--228.
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Affiliated author
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Publication year2014
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JournalEconomics Letters
The maximum likelihood estimator of the adjustment coefficient in a cointegrated vector autoregressive model (CVAR) is generally biased. For the case where the cointegrating vector is known in a first-order CVAR with no intercept, we derive a condition for the unbiasedness of the maximum likelihood estimator of the adjustment coefficients, and provide a simple characterization of the bias in case this condition is violated. A feasible bias correction method is shown to virtually eliminate the bias over a large part of the parameter space.