Time-varying vector error-correction models: Estimation and inference

Jiti Gao, Bin Peng and Yayi Yan

Journal of Econometrics, 2025, vol. 251, issue C

Abstract: This paper considers a time-varying vector error-correction model that allows for different time series behaviors (e.g., unit-root and locally stationary processes) to interact with each other and co-exist. From a practical perspective, this framework can be used to estimate shifts in the predictability of non-stationary variables, and test whether economic theories hold periodically, etc. We first develop a time-varying Granger Representation Theorem, which facilitates the establishment of an asymptotic theory for the model, and then propose estimation and inferential methods for both short-run and long-run coefficients. We also propose an information criterion to estimate the lag length, a singular-value ratio test to determine the cointegration rank, and a hypothesis test to examine the parameter stability. Finally, we extend the framework to allow for unknown structural breaks in either cointegration relationship or time-varying coefficient functions. To validate the theoretical findings, we conduct extensive simulations, and demonstrate the empirical relevance by testing the present value model for stock returns.

Keywords: Cointegration; Gaussian approximations; Granger representation theorem; Iterated time-varying functions; Present value model (search for similar items in EconPapers)
JEL-codes: C14 C32 G12 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304407625000892
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Time-Varying Vector Error-Correction Models: Estimation and Inference (2023)
Working Paper: Time-Varying Vector Error-Correction Models: Estimation and Inference (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:251:y:2025:i:c:s0304407625000892

DOI: 10.1016/j.jeconom.2025.106035

Access Statistics for this article

Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

More articles in Journal of Econometrics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().