TIME-VARYING COINTEGRATION

TIME-VARYING COINTEGRATION

In this paper we propose a time-varying vector error correction model in which the cointegrating relationship varies smoothly over time. The Johansen setup is a special case of our model. A likelihood ratio test for time-invariant cointegration is defined and its asymptotic chi-square distribution i...

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Veröffentlicht in:Econometric theory 2010-10, Vol.26 (5), p.1453-1490
Hauptverfasser: Bierens, Herman J., Martins, Luis F.
Format: Artikel
Sprache:eng
Schlagworte:
Cointegration
Critical values
Econometric models
Econometrics
Economic models
Economic theory
Eigenvalues
Error correction & detection
Error correction models
Foreign exchange rates
Hypotheses
Mathematical vectors
Matrices
Null hypothesis
Polynomials
Purchasing power parity
Ratio test
Studies
Time series
Trends
Unit root
Vector-autoregressive models
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Beschreibung
Zusammenfassung:In this paper we propose a time-varying vector error correction model in which the cointegrating relationship varies smoothly over time. The Johansen setup is a special case of our model. A likelihood ratio test for time-invariant cointegration is defined and its asymptotic chi-square distribution is derived. We apply our test to the purchasing power parity hypothesis of international prices and nominal exchange rates, and we find evidence of time-varying cointegration.
ISSN:0266-4666
1469-4360
DOI:10.1017/S0266466609990648