Trend stationarity in the I(2) cointegration model
A representation for I(2) processes is derived which allows for trend-stationary components and restricts the deterministic part of the process to be at most linear. A two-step statistical analysis of the model is derived. The joint test of I(1) and I(2) cointegrating ranks is shown to be asymptotically similar with respect to the drift terms. The asymptotic distribution is tabulated and an application for UK monetary data illustrates the proposed statistical methods.
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