Time-varying cointegration, identification, and cointegration spaces

Luis Martins and Vasco Gabriel

Studies in Nonlinear Dynamics & Econometrics, 2013, vol. 17, issue 2, 199-209

Abstract: We derive the conditions under which time-varying cointegration leads to cointegration spaces that may be time-invariant or, in contrast, time-varying. The model of interest is a vector error correction model with arbitrary time-varying cointegration parameters. We clarify the role of identification and normalization restrictions and show that structural breaks in error-correction models may actually correspond to stable long-run economic relationships, as opposed to a single-equation setup, in which an identification restriction is imposed. Moreover, we show that, in a time-varying cointegrating relationship with a given number of variables and cointegration rank, there is a minimum number of orthogonal Fourier functions that most likely guarantees time-varying cointegrating spaces.

Keywords: Time-varying cointegration; cointegration spaces; identification (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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DOI: 10.1515/snde-2012-0022

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