Abstract:
Multiple cointegrating regressions are frequently encountered in empirical work as,
for example, in the analysis of panel data. When the equilibrium errors are
correlated across equations, the seemingly unrelated regression estimation strategy
can be applied to cointegrating regressions to obtain asymptotically efficient
estimators. While non-parametric methods for seemingly unrelated cointegrating
regressions have been proposed in the literature, in practice, specification of the
estimation problem is not always straightforward. We propose Dynamic Seemingly
Unrelated Regression (DSUR) estimators which can be made fully parametric and are
computationally straightforward to use. We study the asymptotic and small sample
properties of the DSUR estimators both for heterogeneous and homogenous
cointegrating vectors. The estimation techniques are then applied to analyze two
long-standing problems in international economics. Our first application revisits the
issue of whether the forward exchange rate is an unbiased predictor of the future
spot rate. Our second application revisits the problem of estimating long-run
correlations between national investment and national saving.