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Functional-coefficient cointegration models in the presence of deterministic trends

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  • Masayuki Hirukawa
  • Mari Sakudo

Abstract

In this article, we extend the functional-coefficient cointegration model (FCCM) to the cases in which nonstationary regressors contain both stochastic and deterministic trends. A nondegenerate distributional theory on the local linear (LL) regression smoother of the FCCM is explored. It is demonstrated that even when integrated regressors are endogenous, the limiting distribution is the same as if they were exogenous. Finite-sample performance of the LL estimator is investigated via Monte Carlo simulations in comparison with an alternative estimation method. As an application of the FCCM, electricity demand analysis in Illinois is considered.

Suggested Citation

  • Masayuki Hirukawa & Mari Sakudo, 2018. "Functional-coefficient cointegration models in the presence of deterministic trends," Econometric Reviews, Taylor & Francis Journals, vol. 37(5), pages 507-533, May.
  • Handle: RePEc:taf:emetrv:v:37:y:2018:i:5:p:507-533
    DOI: 10.1080/07474938.2015.1092845
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    Cited by:

    1. Lin, Yingqian & Tu, Yundong & Yao, Qiwei, 2020. "Estimation for double-nonlinear cointegration," Journal of Econometrics, Elsevier, vol. 216(1), pages 175-191.
    2. Lin, Yingqian & Tu, Yundong & Yao, Qiwei, 2020. "Estimation for double-nonlinear cointegration," LSE Research Online Documents on Economics 103830, London School of Economics and Political Science, LSE Library.
    3. Qiying Wang & Peter C. B. Phillips & Ying Wang, 2023. "New asymptotics applied to functional coefficient regression and climate sensitivity analysis," Cowles Foundation Discussion Papers 2365, Cowles Foundation for Research in Economics, Yale University.

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