Journal
JOURNAL OF ECONOMETRICS
Volume 136, Issue 1, Pages 163-188Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.jeconom.2005.08.004
Keywords
boundary effects; heteroscedasticity; local linear estimation; misspecification test; Nadaraya-Watson estimation; nonlinearity; nonstationarity; stationarity; time series errors
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This paper studies a time-varying coefficient time series model with a time trend function and serially correlated errors to characterize the nonlinearity, nonstationarity, and trending phenomenon. A local linear approach is developed to estimate the time trend and coefficient functions. The asymptotic properties of the proposed estimators, coupled with their comparisons with other methods, are established under the a-mixing conditions and without specifying the error distribution. Further, the asymptotic behaviors of the estimators at the boundaries are examined. The practical problem of implementation is also addressed. In particular, a simple nonparametric version of a bootstrap test is adapted for testing misspecification and stationarity, together with a data-driven method for selecting the bandwidth and a consistent estimate of the standard errors. Finally, results of two Monte Carlo experiments are presented to examine the finite sample performances of the proposed procedures and an empirical example is discussed. (c) 2005 Elsevier B.V. All rights reserved.
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