Hidden Cointegration

Clive Granger and Gawon Yoon
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Gawon Yoon: Pusan National University

No 92, Royal Economic Society Annual Conference 2002 from Royal Economic Society

Abstract: Possibly hitherto unnoticed cointegrating relationships among integrated components of data series are identified. If the components are cointegrated, the data are said to have hidden cointegration. The implication of hidden cointegration on modeling data series themselves is discussed through what we call crouching error correction models. We show that hidden cointegration is a simple example of nonlinear cointegration. Economic examples are provided with U.S. short-term and long-term interest rates and output and unemployment, for which no evidence of standard cointegration is found.

Date: 2002-08-29
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