Functional coefficient cointegration models with Box-Cox transformation

Authors：Lin, Yingqian; Tu, Yundong^*

Source：Economics Letters, 2024, 234: 111472.

DOI：10.1016/j.econlet.2023.111472

• Box-Cox transformation
• Cointegration
• Extremum estimation
• Functional coefficient
• Sieve method

This paper considers a functional coefficient cointegration model where the dependent variable is subject to a Box-Cox transformation. A profile method is proposed to estimate the Box-Cox transformation parameter beta(0). We first approximate the functional coefficients by sieve method assuming that beta(0) is known. Then an extremum estimator of beta(0) is proposed based on a loss function which measures the relative variation of the regression residual compared to the variation in the transformed dependent variable. Finally, a plug-in estimator of the functional coefficients is obtained. Asymptotic properties of the proposed estimators are developed. Numerical results demonstrate the nice performance of the estimators and corroborate the theoretical development.

• Institution
  北京大学