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

Takamitsu Kurita and Mototsugu Shintani
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Takamitsu Kurita: Faculty of Economics, Kyoto Sangyo University
Mototsugu Shintani: Faculty of Economics, The University of Tokyo

No CIRJE-F-1216, CIRJE F-Series from CIRJE, Faculty of Economics, 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.

Pages: 42 pages
Date: 2023-06
New Economics Papers: this item is included in nep-ecm and nep-ets
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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2023cf1216

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