The impact of integrated measurement errors on modeling long-run macroeconomic time series

Date: 27 March 2017

Data spanning long time periods, such as that over 1860–2012 for the UK, seem likely to have substantial errors of measurement that may even be integrated of order one, but which are probably cointegrated for cognate variables. We analyze and simulate the impacts of such measurement errors on parameter estimates and tests in a bivariate cointegrated system with trends and location shifts which reflect the many major turbulent events that have occurred historically. When trends or shifts therein are large, cointegration analysis is not much affected by such measurement errors, leading to conventional stationary attenuation biases dependent on the measurement error variance, unlike the outcome when there are no offsetting shifts or trends. KEYWORDS: Cointegration, integrated measurement errors, location shifts, long-run data

James A. Duffy David F Hendry

Economic Modelling

The impact of integrated measurement errors on modeling long-run macroeconomic time series


Type: paper

Duffy, J.A. and Hendry, D. F. (2017). ‘The Impact of Near-Integrated Measurement Errors on Modelling Long-run Macroeconomic Time Series’. Econometric Reviews, 36, 568--587.


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