Hidden Cointegration

U of California, Economics Working Paper No. 2002-02

49 Pages Posted: 5 Jun 2002

See all articles by Clive W. J. Granger

Clive W. J. Granger

University of California, San Diego (UCSD) - Department of Economics; Tinbergen Institute

Gawon Yoon

Kookmin University; Pusan National University

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

Granger, Clive W. J. and Yoon, Gawon, Hidden Cointegration (January 2002). U of California, Economics Working Paper No. 2002-02, Available at SSRN: https://ssrn.com/abstract=313831 or http://dx.doi.org/10.2139/ssrn.313831

Clive W. J. Granger (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

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Tinbergen Institute ( email )

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Gawon Yoon

Kookmin University ( email )

Chongnung-dong, Songbuk-gu
Seoul, 136-702
Korea, Republic of (South Korea)

Pusan National University ( email )

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Kumjungku, Pusan 609-735, 50612
Korea, Republic of (South Korea)