Inappropriate Detrending and Spurious Cointegration

Heejoon Kang

No 624, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: The empirical literature is abundant with detrended cointegration, where cointegration relations are estimated with deterministic trend terms. The use of detrended cointegration will mask important time series properties, however, because trend and cointegration indicate both deterministic and stochastic common trends. Cointegration with and without detrending shows markedly different implications on their long-run relations. A series of Monte Carlo experiments show that inappropriately detrended time series often exhibit cointegration although time series are designed to contain no cointegration. That is, inappropriately detrended time series tend to show spurious cointegration. Foreign exchange rates are analyzed to show the relevance and importance of the inappropriate detrended in cointegration analysis

Keywords: Determistic trend; stochastic trend; foreign exchange rates; Monte Carlo study (search for similar items in EconPapers)
JEL-codes: C15 C22 E31 (search for similar items in EconPapers)
Date: 2004-08-11
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: Inappropriate Detrending and Spurious Cointegration (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecm:feam04:624

Access Statistics for this paper

More papers in Econometric Society 2004 Far Eastern Meetings from Econometric Society Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().