Fractional integration methods and short time series: Evidence from a simulation study

Agnar Freyr Helgason*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)

Abstract

Grant and Lebo (2016) and Keele, Linn, and Webb (2016) provide diverging recommendations to analysts working with short time series that are potentially fractionally integrated. While Grant and Lebo are quite positive about the prospects of fractionally differencing such data, Keele, Linn, and Webb argue that estimates of fractional integration will be highly uncertain in short time series. In this study, I simulate fractionally integrated data and compare estimates from the general error correction model (GECM), which disregards fractional integration, to models using fractional integration methods over thirty-two simulation conditions. I find that estimates of short-run effects are similar across the two models, but that models using fractionally differenced data produce superior predictions of long-run effects for all sample sizes when there are no short-run dynamics included. When short-run dynamics are included, the GECM outperforms the alternative model, but only in time series that consist of under 250 observations.

Original languageEnglish
Pages (from-to)59-68
Number of pages10
JournalPolitical Analysis
Volume24
Issue number1
DOIs
Publication statusPublished - 1 Dec 2016

Bibliographical note

Publisher Copyright:
© The Author 2016.

Fingerprint

Dive into the research topics of 'Fractional integration methods and short time series: Evidence from a simulation study'. Together they form a unique fingerprint.

Cite this