Wavelet Estimation of Time Series Regression with Long Memory Processes

This paper studies the estimation of time series regression when both regressors and disturbances have long memory. In contrast with the frequency domain estimation as in Robinson and Hidalgo (1997), we propose to estimate the same regression model with discrete wavelet transform (DWT) of the original series. Due to the approximate de-correlation property of DWT, the transformed series can be estimated using the traditional least squares techniques. We consider both the ordinary least squares and feasible generalized least squares estimator. Finite sample Monte Carlo simulation study is performed to examine the relative efficiency of the wavelet estimation. * I am really grateful to Yanqin Fan for guidance and comments, and to Robert Taylor and two anonymous referees for valuable comments. All the errors are the author’s