Cointegration between trends and their estimators in state space models and CVAR models

Soren Johansen and Morten Tabor ()

No 17-02, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: In a linear state space model Y(t)=BT(t)+e(t), we investigate if the unobserved trend, T(t), cointegrates with the predicted trend, E(t), and with the estimated predicted trend, in the sense that the spreads are stationary. We find that this result holds for the spread B(T(t)-E(t)) and the estimated spread. For the spread between the trend and the estimated trend, T(t)-E(t), however, cointegration depends on the identification of B. The same results are found, if the observations Y(t), from the state space model are analysed using a cointegrated vector autoregressive model, where the trend is defined as the common trend. Finally, we investigate cointegration between the spread beteween trends and their estimators based on the two models, and find the same results. We illustrate with two examples and confirm the results by a small simulation study.

Keywords: Cointegration of trends; State space models; CVAR models (search for similar items in EconPapers)
JEL-codes: C32 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2017-03-13
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Cointegration between trends and their estimators in state space models and CVAR models (2017)
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