TY  - JOUR
AU  - Canjels,Eugene
AU  - Watson,Mark W.
TI  - Estimating Deterministic Trends in the Presence of Serially Correlated  Errors
JF  - National Bureau of Economic Research Technical Working Paper Series
VL  - No. 165
PY  - 1994
Y2  - September 1994
UR  - http://www.nber.org/papers/t0165
L1  - http://www.nber.org/papers/t0165.pdf
N1  - Author contact info:
Mark W. Watson
Department of Economics
Princeton University
Princeton, NJ 08544-1013
Tel: 609/258-4811
Fax: 609/258-5533
E-Mail: mwatson@princeton.edu
AB  - This paper studies the problems of estimation and inference in the linear trend model: yt=à+þt+ut, where ut follows an autoregressive process with largest root þ, and þ is the parameter of interest.  We contrast asymptotic results for the cases þþþ < 1 and þ=1, and argue that the most useful asymptotic approximations obtain from modeling þ as local-to-unity.  Asymptotic distributions are derived for the OLS, first-difference, infeasible GLS and three feasible GLS estimators. These distributions depend on the local-to-unity parameter and a parameter that governs the variance of the initial error term, þ.  The feasible Cochrane-Orcutt estimator has poor properties, and the feasible Prais-Winsten estimator is the preferred estimator unless the researcher has sharp a priori knowledge about þ and þ.  The paper develops methods for constructing confidence intervals for þ that account for uncertainty in þ and þ.  We use these results to estimate growth rates for real per capita GDP in 128 countries.
ER  -