Testing for Common Trends

Li Chen, Jiti Gao and Farshid Vahid

Chapter 5 in Nonlinear Trending Time Series:Theory and Practice, 2024, pp 151-171 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Economic and financial theories occasionally predict the existence of shared common trends among specific time series variables. This implies that a linear or nonlinear combination of nonstationary trending time series can result in a stationary series. This phenomenon suggests that these nonstationary variables move together in the long run, establishing a stable equilibrium relationship. It’s important to note that these common trend relationships are long-run associations, differing from correlations between short-run shocks or innovations. The key distinction lies in the fact that economic forces responding to deviations from equilibrium may require a relatively extended period to restore equilibrium…

Keywords: Econometrics; Time Series; Time Series Analysis; Time Trend; Deterministic Trend; Stochastic Trend; Nonlinear Time Series; Nonlinear Models; Trending Time Series; Nonparametric Models; Semiparametric Models; Climate Change; Climate Change Econometrics; Strong Trend; Weak Trend; Common Trend; Statistical Tests (search for similar items in EconPapers)
JEL-codes: C01 C1 Q5 (search for similar items in EconPapers)
Date: 2024
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