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The analysis of nonstationary time series using regression, correlation and cointegration - with an application to annual mean temperature and sea level

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  • Søren Johansen

    ()
    (University of Copenhagen)

Abstract

There are simple well-known conditions for the validity of regression and correlation as statistical tools. We analyse by examples the e¤ect of nonstationarity on inference using these methods and compare them to model based inference. Finally we analyse some data on annual mean temperature and sea level, by applying the cointegrated vector autoregressive model, which explicitly takes into account the nonstationarity of the variables.

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File URL: http://www.dss.uniroma1.it/RePec/sas/wpaper/20114_johansen_2.pdf
File Function: First version, 2011
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Paper provided by Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome in its series DSS Empirical Economics and Econometrics Working Papers Series with number 2011/4.

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Length: 26 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:sas:wpaper:20114

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Keywords: Regression correlation cointegration; model based inference; likelihood inference; annual mean temperature; sea level;

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  1. Peter C.B. Phillips, 1985. "Understanding Spurious Regressions in Econometrics," Cowles Foundation Discussion Papers 757, Cowles Foundation for Research in Economics, Yale University.
  2. Phillips, P C B, 1991. "Optimal Inference in Cointegrated Systems," Econometrica, Econometric Society, vol. 59(2), pages 283-306, March.
  3. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  4. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679, September.
  5. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  6. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  7. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
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