Separation in Cointegrated Systems and Persistent-Transitory Decompositions

Oxford Bulletin of Economics and Statistics, 59 (4), pp. 449-463

Posted: 23 Jan 1998

See all articles by Clive W. J. Granger

Clive W. J. Granger

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

Niels Haldrup

Aarhus University, School of Economics and Management; CREATES

Abstract

The notion of separation in cointegrated systems helps identifying possible sub-system structures that may reduce the complexity of larger systems by yielding a more parsimonious representation of the time series. In this paper we demonstrate that although the subsystem cointegration analysis in such systems can be conducted in case of both completely and partially separated systems, the dual appraoch, i.e. calculation of the common stochastic trends, may turn out to yield properties of the trends that differ depending upon the type of separation under consideration. In particular, we demonstrate how persistent-transitory decompositions and long- and short-memory factorisations of a multivariate time series will be affected when considering different types of separation. Generalisations to non-linear error correction models are also discussed.

JEL Classification: C32, C40

Suggested Citation

Granger, Clive W. J. and Haldrup, Niels, Separation in Cointegrated Systems and Persistent-Transitory Decompositions . Oxford Bulletin of Economics and Statistics, 59 (4), pp. 449-463, Available at SSRN: https://ssrn.com/abstract=55122

Clive W. J. Granger (Contact Author)

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

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Niels Haldrup

Aarhus University, School of Economics and Management ( email )

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CREATES ( email )

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