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Detecting long memory co-movements in macroeconomic time series

Author

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  • Gianluca Moretti

    (Banca d'Italia, Research Department)

Abstract

Cointegration analysis tests for the existence of a significant long-run equilibrium among some economic variables. Standard econometric procedures to test for cointegration have proven unreliable when the long-run relation among the variables is characterized by non-linearities and persistent fluctuations around the equilibrium. As a consequence, many intuitive economic relations are empirically rejected. In this paper we propose a simple approach to account for non-linearities in the cointegrating equilibrium and possible long memory fluctuations from such equilibrium. We show that our correction allows us to test robustly for the presence of cointegration both under the null and alternative hypotheses. We apply our procedure to the Johansen-Juselius PPP-UIP database, and unlike the standard case, we do not fail to reject the null of no cointegration.

Suggested Citation

  • Gianluca Moretti, 2007. "Detecting long memory co-movements in macroeconomic time series," Temi di discussione (Economic working papers) 642, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_642_07
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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2007/2007-0642/en_tema_642.pdf
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    References listed on IDEAS

    as
    1. Luis A. Gil‐Alana, 2003. "Testing of Fractional Cointegration in Macroeconomic Time Series," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(4), pages 517-529, September.
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    Cited by:

    1. Gianluca, MORETTI & Giulio, NICOLETTI, 2008. "Estimating DGSE models with long memory dynamics," Discussion Papers (ECON - Département des Sciences Economiques) 2008037, Université catholique de Louvain, Département des Sciences Economiques.
    2. Gianluca Moretti & Giulio Nicoletti, 2010. "Estimating DSGE models with unknown data persistence," Temi di discussione (Economic working papers) 750, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    Cointegration analysis; long memory;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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