An I(2) Cointegration Model with Piecewise Linear Trends: Likelihood Analysis and Application

Research output: Working paperResearch

Documents

  • PDF

    Final published version, 333 KB, PDF document

This paper presents likelihood analysis of the I(2) cointegrated vector autoregression with piecewise linear deterministic terms. Limiting behavior of the maximum likelihood estimators are derived, which is used to further derive the limiting distribution of the likelihood ratio statistic for the cointegration ranks, extending the result for I(2) models with a linear trend in Nielsen and Rahbek (2007) and for I(1) models with piecewise linear trends in Johansen, Mosconi, and Nielsen (2000). The provided asymptotic theory extends also the results in Johansen, Juselius, Frydman, and Goldberg (2009) where asymptotic inference is discussed in detail for one of the cointegration parameters. To illustrate, an empirical analysis of US consumption, income and wealth, 1965 - 2008, is performed, emphasizing the importance of a change in nominal price trends after 1980.
Original languageEnglish
PublisherDepartment of Economics, University of Copenhagen
Number of pages24
Publication statusPublished - 2009

Number of downloads are based on statistics from Google Scholar and www.ku.dk


No data available

ID: 13458301