Deterministic versus Stochastic Seasonal Fractional Integration and Structural Breaks

28 Pages Posted: 22 May 2007

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Juncal Cunado

University of Navarra - Faculty of Economics

Luis A. Gil-Alana

University of Navarra - Department of Economics

Date Written: May 2007

Abstract

This paper considers a general model which allows for both deterministic and stochastic forms of seasonality, including fractional (stationary and nonstationary) orders of integration, and also incorporating endogenously determined structural breaks. Monte Carlo analysis shows that the suggested procedure performs well even in small samples, accurately capturing the seasonal properties of the series, and correctly detecting the break date. As an illustration, the model is estimated for four different US series (output, consumption, imports and exports). The results suggest that the seasonal patterns of these variables have changed over time: specifically, in the second subsample the systematic component of seasonality becomes insignificant, whilst the degree of persistence increases.

Keywords: deterministic and stochastic seasonality, fractional integration, structural breaks

JEL Classification: C22

Suggested Citation

Caporale, Guglielmo Maria and Cunado, Juncal and Gil-Alana, Luis A., Deterministic versus Stochastic Seasonal Fractional Integration and Structural Breaks (May 2007). CESifo Working Paper Series No. 1989, Available at SSRN: https://ssrn.com/abstract=988035

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Juncal Cunado

University of Navarra - Faculty of Economics ( email )

Campus Universitario
Pamplona, Navarra 31009
Spain

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

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