Functional-coefficient cointegration models in the presence of deterministic trends

Masayuki Hirukawa and Mari Sakudo

Econometric Reviews, 2018, vol. 37, issue 5, 507-533

Abstract: In this article, we extend the functional-coefficient cointegration model (FCCM) to the cases in which nonstationary regressors contain both stochastic and deterministic trends. A nondegenerate distributional theory on the local linear (LL) regression smoother of the FCCM is explored. It is demonstrated that even when integrated regressors are endogenous, the limiting distribution is the same as if they were exogenous. Finite-sample performance of the LL estimator is investigated via Monte Carlo simulations in comparison with an alternative estimation method. As an application of the FCCM, electricity demand analysis in Illinois is considered.

Date: 2018
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Citations: View citations in EconPapers (4)

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DOI: 10.1080/07474938.2015.1092845

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