An I(2) Cointegration Model with Piecewise Linear Trends: Likelihood Analysis and Application
AbstractThis paper presents likelihood analysis of the I(2) cointegrated vector autoregression with piecewise linear deterministic terms. Limiting behavior of the maximum likelihood estimators are derived, which is used to further derive the limiting distribution of the likelihood ratio statistic for the cointegration ranks, extending the result for I(2) models with a linear trend in Nielsen and Rahbek (2007) and for I(1) models with piecewise linear trends in Johansen, Mosconi, and Nielsen (2000). The provided asymptotic theory extends also the results in Johansen, Juselius, Frydman, and Goldberg (2009) where asymptotic inference is discussed in detail for one of the cointegration parameters. To illustrate, an empirical analysis of US consumption, income and wealth, 1965 - 2008, is performed, emphasizing the importance of a change in nominal price trends after 1980.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2009-28.
Date of creation: 06 Jul 2009
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Cointegration; I(2); Piecewise linear trends; Likelihood analysis; US consumption;
Other versions of this item:
- Takamitsu Kurita & Heino Bohn Nielsen & Anders Rahbek, 2009. "An I(2) Cointegration Model With Piecewise Linear Trends: Likelihood Analysis And Application," Discussion Papers 09-13, University of Copenhagen. Department of Economics.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-11 (All new papers)
- NEP-ECM-2009-07-11 (Econometrics)
- NEP-ETS-2009-07-11 (Econometric Time Series)
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