THE EFFECTS OF DIFFERENCING ON THE GAUSSIAN LIKELIHOOD OF MODELS WITH UNOBSERVABLE STOCHASTIC TRENDS: A SIMPLE EXAMPLE

Abstract

Editors' Note: In the course of preparing the final version of Bergstrom (1997) estimation of mixed-order continuous-time dynamic models with unob servable stochastic trends from mixed stock and flow data (Econometric Theory 13, 467-505), Rex Bergstrom submitted a handwritten twenty-six page document. This document responded to an issue raised in the review and provided an illustration that the Gaussian likelihood remained invariant under differencing. The notes are pub lished here because the material is of interest in its own right and illustrates the care and clarity of vision with which Rex Bergstrom approached all of his work.