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An asymptotic invariance property of the common trends under linear transformations of the data

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  • Johansen, Søren
  • Juselius, Katarina

Abstract

It is well known that if Xt is a nonstationary process and Yt is a linear function of Xt, then cointegration of Yt implies cointegration of Xt. We want to find an analogous result for common trends if Xt is generated by a finite order VAR with i.i.d. (0,Ωx) errors εxt. We first show that Yt has an infinite order VAR representation in terms of its white noise prediction errors, εyt, which are a linear process in εxt, the prediction error for Xt. We then apply this result to show that the limit of the common trends for Yt generated by εyt, are linear functions of the common trends for Xt, generated by εxt.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 178 (2014)
Issue (Month): P2 ()
Pages: 310-315

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Handle: RePEc:eee:econom:v:178:y:2014:i:p2:p:310-315

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Web page: http://www.elsevier.com/locate/jeconom

Related research

Keywords: Cointegration vectors; Common trends; Prediction errors;

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  1. Saikkonen, Pentti, 1992. "Estimation and Testing of Cointegrated Systems by an Autoregressive Approximation," Econometric Theory, Cambridge University Press, vol. 8(01), pages 1-27, March.
  2. Saikkonen, Pentti & Lütkepohl, HELMUT, 1996. "Infinite-Order Cointegrated Vector Autoregressive Processes," Econometric Theory, Cambridge University Press, vol. 12(05), pages 814-844, December.
  3. S�ren Johansen, 2009. "Representation of Cointegrated Autoregressive Processes with Application to Fractional Processes," Econometric Reviews, Taylor & Francis Journals, vol. 28(1-3), pages 121-145.
  4. Giese, Julia V., 2008. "Level, Slope, Curvature: Characterising the Yield Curve in a Cointegrated VAR Model," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(28), pages 1-20.
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