1. Department of Economics, University of Chicago, 1126 E. 59th St., Chicago, IL 60637, USA;2. Department of Statistics, University of Chicago, 5734 S. University Avenue, Chicago, IL 60637, USA
Abstract:
The paper considers local linear regression of a time series model with non-stationary regressors and errors. Asymptotic property of the local linear estimator is derived under a new dependence measure of non-stationary time series. We apply the local linear regression method to estimate the “time-varying” coefficients of an economic-causal model for the industrial sector of the U.S. economy. Nonparametric bootstrap test on the time-varying coefficients strongly suggests that the price/income elasticities of the U.S. durable goods demand are time-varying.