Two stage least squares estimation in structural cointegration models

This paper considers single-equation estimation of simultaneous equation models with integrated processes. The aim of the paper is to investigate asymptotic and small sample properties of some estimators in this framework. We deal with two groups of estimators: such that originally were designated for reduced form estimation and such for simultaneous equation models. In the first group we deal with Least Squares and Fully Modified Least Squares. The second group comprises Two Stage Least Squares and two modifications of it. The asymptotic analysis in section 2 shows that it is true that all estimators are super-consistent in this context but in principle, only the methods of the second group enable valid inference. Section 3 presents the results of a simulation study which is designed for specific problems of simultaneous equation models. This paper was presented at the European Meeting of the Econometric Society in Istanbul, 1996. The author thanks an anonymous referee for helpful suggestions.