This paper examines several practical issues regarding the
implementation of the Phillips and Hansen fully modified least
squares (FMLS) method for the estimation of a cointegrating
vector. Various versions of this method arise by selecting between
standard and prewhitened kernel estimation and between parametric
and nonparametric automatic bandwidth estimators and also among
alternative kernels. A Monte Carlo study is conducted to
investigate the finite-sample properties of the alternative
versions of the FMLS procedure. The results suggest that the
prewhitened kernel estimator of Andrews and Monahan (1992,
Econometrica 60, 953–966) in which the bandwidth
parameter is selected via the nonparametric procedure of Newey
and West (1994, Review of Economic Studies 61,
631–653) minimizes the second-order asymptotic bias effects.