Cotrending: Testing for common deterministic trends in varying means model

Marie-Christine Düker, Vladas Pipiras and Raanju Sundararajan

Journal of Multivariate Analysis, 2022, vol. 187, issue C

Abstract: In a varying means model, the temporary evolution of a p-vector system is determined by p deterministic nonparametric functions superimposed by error terms, possibly dependent cross sectionally. The basic interest is in linear combinations across the p dimensions that make the deterministic functions constant over time. The number of such linearly independent linear combinations is referred to as a cotrending dimension, and their spanned space as a cotrending space. This work puts forward a framework to test statistically for cotrending dimension and space. Connections to principal component analysis and cointegration are also considered. Finally, a simulation study to assess the finite-sample performance of the proposed tests, and applications to several real data sets are also provided.

Keywords: Asymptotic normality; Cointegration; Cotrending dimension and space; Matrix rank and nullity; Principal component analysis; Testing; Varying means (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jmva.2021.104825

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