The Failure of Orthogonality under Nonstationarity : Should We Care About It?
Joint Authors
Campillo-García, Jose A.
Ventosa-Santaulària, Daniel
Source
Journal of Probability and Statistics
Issue
Vol. 2011, Issue 2011 (31 Dec. 2011), pp.1-15, 15 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2011-03-07
Country of Publication
Egypt
No. of Pages
15
Main Subjects
Abstract EN
We consider two well-known facts in econometrics: (i) the failure of the orthogonality assumption (i.e., no independence between the regressors and the error term), which implies biased and inconsistent Least Squares (LS) estimates and (ii) the consequences of using nonstationary variables, acknowledged since the seventies; LS might yield spurious estimates when the variables do have a trend component, whether stochastic or deterministic.
In this work, an optimistic corollary is provided: it is proven that the LS regression, employed in nonstationary and cointegrated variables where the orthogonality assumption is not satisfied, provides estimates that converge to their true values.
Monte Carlo evidence suggests that this property is maintained in samples of a practical size.
American Psychological Association (APA)
Campillo-García, Jose A.& Ventosa-Santaulària, Daniel. 2011. The Failure of Orthogonality under Nonstationarity : Should We Care About It?. Journal of Probability and Statistics،Vol. 2011, no. 2011, pp.1-15.
https://search.emarefa.net/detail/BIM-464080
Modern Language Association (MLA)
Campillo-García, Jose A.& Ventosa-Santaulària, Daniel. The Failure of Orthogonality under Nonstationarity : Should We Care About It?. Journal of Probability and Statistics No. 2011 (2011), pp.1-15.
https://search.emarefa.net/detail/BIM-464080
American Medical Association (AMA)
Campillo-García, Jose A.& Ventosa-Santaulària, Daniel. The Failure of Orthogonality under Nonstationarity : Should We Care About It?. Journal of Probability and Statistics. 2011. Vol. 2011, no. 2011, pp.1-15.
https://search.emarefa.net/detail/BIM-464080
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-464080