Hidden Cointegration
U of California, Economics Working Paper No. 2002-02
49 Pages Posted: 5 Jun 2002
Date Written: January 2002
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.
Keywords: Hidden Cointegration, Crouching Error Correction Models, Shocks, Interest Rates, Hysteresis of Unemployment
JEL Classification: C32, E43, E24
Suggested Citation: Suggested Citation