Abstract
Abstract There are a number of econometrics tools to deal with the different types of situations in which cointegration can appear: I(1), I(2), seasonal, polyno- mial, etc. There are also different kinds of Vector Error Correction models related to these situations. The authors propose a unified theoretical and practical framework to deal with many of these situations. To this aim: (i) they introduce a general class of models and (ii) provide an automatic method to identify models, based on estimating the Smith form of an autoregressive model. Their simulations suggest the power of the new proposed methodology. An empirical example illustrates the methodology.
Highlights
The basis of the theory of cointegration was laid out in a surge of articles about the late eighties and early nineties, preceded by the seminal paper by Granger (1981)
We have tried to unify the treatment of cointegration for practitioners, in doing so we have contributed in providing unified theoretic framework for a broad class of situations
To this end we have provided a theoretical framework that covers any process that can be represented by an autoregressive model with unit roots
Summary
The basis of the theory of cointegration was laid out in a surge of articles about the late eighties and early nineties, preceded by the seminal paper by Granger (1981). By the mid-nineties, there was a relatively complete theoretical framework for I(1) (Engle and Granger, 1987; Johansen, 1988; Johansen and Juselius, 1990), I(2) cointegration (Johansen, 1992; Paruolo, 1996), multicointegration (Granger and Lee, 1989) and seasonal cointegration (Hylleberg et al, 1990). Much of the attention in cointegration theory has been focused on panel data (Levin and Lin, 1993; Levin et al, 2002) or on fractional cointegration (Engle and Granger, 1987; Granger and Joyeux, 1980). Latest developments are focused on particular cases as cointegration in dynamic panels (Yu and Lee, 2010), or panel data multicointegration (Worthington and Higgs, 2010). A concern that may explain the persistence of interest in the algebra of cointegration is the perceived necessity of a unifying theoretic framework for all situations
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