Pre-whitening in FMOLS estimation

[ylijohtaja]

Hi all,

It appears to be difficult to find detailed information about prewhitening in FMOLS estimation. EViews FMOLS estimation options include lag specification for (pre-)whitening. I would like to understand what exactly does this whitening do and when & why should one conduct such whitening - any good source for the knowledge (I have seriously tried to find without real success) or could anyone briefly explain?

Best,
YJ

[EViews Glenn]

FMOLS estimation requires the computation of long-run covariance matrices as discussed in

https://eviews.com/help/helpintro.html# ... round.html

Whitening is one of the methods used for computing these covariances, either as a stand-alone method (parametric VARHAC), or as part of a pre-whitened kernel approach.

https://eviews.com/help/helpintro.html# ... ssion.html

References are provided in the documentation.

I hope that this answers the question.

[ylijohtaja]

Many thanks Glenn!