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Journal of Financial Econometrics, 2010, Vol. 8, No. 2, 174–176 The Making of “Estimation of Common Long-Memory Components in Cointegrated Systems” JESÚS GONZALO Department of Economics, U. Carlos III de Madrid The eighties were very good years for music as well as econometrics. In time- series econometrics, the first half of that decade was dominated by research on unit roots while cointegration was the queen of the second half. Estimation and testing of a cointegrated system were the key questions to answer. When I started my dissertation at the end of the eighties, under the super- vision of Clive Granger and Robert Engle, you could sense that everyone was of the opinion that the testing problem of the cointegration rank had been solved by Johansen (1988). Johansen applied reduced rank regression techniques to the following error correction model (ECM) (Granger ’s old notation is used to keep the spirit of the eighties) ΔX = γα X + ε (1) t t t−1 and obtained the corresponding asymptotics. Nevertheless, estimation was still under close scrutiny, and new estimators appeared on a regular basis in the literature. It was also the case however that different methods could lead to very different
Journal of Financial Econometrics – Oxford University Press
Published: Jan 1, 2010
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