Testing for Codependence of Non-Stationary Variables

Carsten Trenkler and Enzo Weber

No 446, University of Regensburg Working Papers in Business, Economics and Management Information Systems from University of Regensburg, Department of Economics

Abstract: We analyze non-stationary time series that do not only trend together in the long run, but restore the equilibrium immediately in the period following a deviation. While this represents a common serial correlation feature, the framework is extended to codependence, allowing for delayed adjustment. We show which restrictions are implied for VECMs and lay out a likelihood ratio test. In addition, due to identification problems in codependent VECMs a GMM test approach is proposed. We apply the concept to US and European interest rate data, examining the capability of the Fed and ECB to control overnight money market rates.

Keywords: Serial correlation common features; codependence; cointegration; overnight interest rates; central banks (search for similar items in EconPapers)
JEL-codes: C32 E52 (search for similar items in EconPapers)
Date: 2010-09-15
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:bay:rdwiwi:16478

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