Fractional trends in unobserved components models

Tobias Hartl, Rolf Tschernig () and Enzo Weber

Papers from arXiv.org

Abstract: We develop a generalization of unobserved components models that allows for a wide range of long-run dynamics by modelling the permanent component as a fractionally integrated process. The model does not require stationarity and can be cast in state space form. In a multivariate setup, fractional trends may yield a cointegrated system. We derive the Kalman filter estimator for the common fractionally integrated component and establish consistency and asymptotic (mixed) normality of the maximum likelihood estimator. We apply the model to extract a common long-run component of three US inflation measures, where we show that the $I(1)$ assumption is likely to be violated for the common trend.

Date: 2020-05, Revised 2020-05
New Economics Papers: this item is included in nep-ecm and nep-ets
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2005.03988

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