Estimating the differencing parameter via the partial autocorrelation function

This paper provides an explanation for the puzzling phenomenon in Tieslau c t al. (1996, Journal of Econometrics 71, 249-264) that a substantial effici ency loss occurs if low-order autocorrelations are omitted when estimating the differencing parameter, d. This is because for all it strictly bigger t han I,the nth-order autocorrelation function does not depend uniquely on th e differencing parameter. We construct a new estimator for the differencing parameter based on the partial autocorrelation function. Comparisons of th e asymptotic and finite-sample variance of our estimator and those of TSB a re made. A substantial efficiency gain is achieved by our estimator as comp ared to TSB's. (C) 2000 Elsevier Science S.A. All lights reserved. JEL clas sification: C22.