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Johansen Test with Fourier-Type Smooth Nonlinear Trends in Cointegrating Relations

Author

Listed:
  • Takamitsu Kurita

    (Faculty of Economics, Kyoto Sangyo University)

  • Mototsugu Shintani

    (Faculty of Economics, The University of Tokyo)

Abstract

We develop methodology for testing cointegrating rank in vector autoregressive (VAR) models in the presence of Fourier-type smooth nonlinear deterministic trends in cointegrating relations. The limiting distribution of log-likelihood ratio test statistics is derived and approximated limit quantiles are tabulated. A sequential procedure to select cointegrating rank is evaluated by Monte Carlo simulations. Our empirical application to economic data also demonstrates the usefulness of the proposed methodology in a practical context.

Suggested Citation

  • Takamitsu Kurita & Mototsugu Shintani, 2023. "Johansen Test with Fourier-Type Smooth Nonlinear Trends in Cointegrating Relations," CIRJE F-Series CIRJE-F-1216, CIRJE, Faculty of Economics, University of Tokyo.
    • Handle: RePEc:tky:fseres:2023cf1216
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    References listed on IDEAS

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