Econometrica: May, 2006, Volume 74, Issue 3

Optimal Inference in Regression Models with Nearly Integrated Regressors

https://doi.org/10.1111/j.1468-0262.2006.00679.x
p. 681-714

Michael Jansson, Marcelo J. Moreira

This paper considers the problem of conducting inference on the regression coefficient in a bivariate regression model with a highly persistent regressor. Gaussian asymptotic power envelopes are obtained for a class of testing procedures that satisfy a conditionality restriction. In addition, the paper proposes testing procedures that attain these power envelopes whether or not the innovations of the regression model are normally distributed.