Fractional Cointegration in the Presence of Linear Trends

16 Pages Posted: 27 Oct 2008

See all articles by Uwe Hassler

Uwe Hassler

Goethe University Frankfurt - Faculty of Economics and Business Administration

Francesc Marmol

Universidad Carlos III de Madrid - Department of Economics

Carlos Velasco

Universidad Carlos III de Madrid - Department of Economics

Date Written: 0000

Abstract

We consider bivariate regressions of nonstationary fractionally integrated variables dominated by linear time trends. The asymptotic behaviour of the ordinary least square (OLS) estimators in this case allows limiting normality to arise at a faster rate of convergence than if the individual series were detrended, increasing in this way the power of the tests for fractional cointegration. We also show that the limiting distribution of the t-ratio of the slope coefficient depends upon the presence or not of a deterministic trend in the conditional regressor. We introduce the concept of local fractional trend to explain the apparently diverging asymptotic theories that apply when a trend is either present or absent in our set-up.

Suggested Citation

Hassler, Uwe and Marmol, Francesc and Velasco, Carlos, Fractional Cointegration in the Presence of Linear Trends (0000). Journal of Time Series Analysis, Vol. 29, Issue 6, pp. 1088-1103, November 2008. Available at SSRN: https://ssrn.com/abstract=1288882 or http://dx.doi.org/10.1111/j.1467-9892.2008.00597.x

Uwe Hassler (Contact Author)

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 4
Frankfurt am Main, D-60323
Germany

Francesc Marmol

Universidad Carlos III de Madrid - Department of Economics ( email )

E-28903 Getafe (Madrid)
Spain

Carlos Velasco

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34-91 6249646 (Phone)
+34-91 6249875 (Fax)

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