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Limit Theory for Continuous Time Systems with Mildly Explosive Regressors

Author

Listed:
  • Peter C. B. Phillips

    (Yale University)

  • Ye Chen

    (Singapore Management University)

  • Jun Yu

    (Singapore Management University)

Abstract

Limit theory is developed for continuous co-moving systems with mildly explosive regressors. The theory uses double asymptotics with in ll (as the sampling interval tends to zero) and large time span asymptotics. The limit theory explicitly involves initial conditions, allows for drift in the system, is provided for single and multiple explosive regressors, and is feasible to implement in practice. Simulations show that double asymptotics deliver a good approximation to the nite sample distribution, with both nite sample and asymptotic distributions showing sensitivity to initial conditions. The methods are implemented in the US real estate market for an empirical application, illustrating the usefulness of double asymptotics in practical work.

Suggested Citation

  • Peter C. B. Phillips & Ye Chen & Jun Yu, 2015. "Limit Theory for Continuous Time Systems with Mildly Explosive Regressors," Working Papers 03-2015, Singapore Management University, School of Economics.
    • Handle: RePEc:siu:wpaper:03-2015
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    File URL: http://ink.library.smu.edu.sg/soe_research/1753/
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    More about this item

    Keywords

    Cointegrated system; Explosive Process; Moderate Deviations from Unity; Double Asymptotics; Real Estate Market.;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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