Time-varying cointegration. (English) Zbl 1198.62088
Summary: We propose a time-varying vector error correction model in which the cointegrating relationship varies smoothly over time. The S. Johansen setup [J. Econ. Dyn. Control 12, No. 2–3, 231–254 (1988; Zbl 0647.62102); Econometrica 59, No. 6, 1551–1580 (1991; Zbl 0755.62087)] 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.
MSC:
| 62M10 | Time series, auto-correlation, regression, etc. in statistics (GARCH) |
| 62E20 | Asymptotic distribution theory in statistics |
| 65C60 | Computational problems in statistics (MSC2010) |
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