A SIMPLE ESTIMATOR OF COINTEGRATING VECTORS IN HIGHER-ORDER INTEGRATED SYSTEMS

Efficient estimators of cointegrating vectors are presented for system s involving deterministic components and variables of differing, highe r orders of integration. The estimators are computed using GLS or OLS, and Wald Statistics constructed from these estimators have asymptotic chi2 distributions. These and previously proposed estimators of coint egrating vectors are used to study long-run U.S. money (M1) demand. M1 demand is found to be stable over 1900-1989; the 95% confidence inter vals for the income elasticity and interest rate semielasticity are (. 88, 1.06) and (-.13, -.08), respectively. Estimates based on the postw ar data alone, however, are unstable, with variances which indicate su bstantial sampling uncertainty.