Cointegrating Regressions With Time Varying Coefficients

Abstract

This paper considers cointegrating regressions with time varying coefficients. The coefficients are modeled as smooth functions evolving over time. It is shown that they can be estimated nonparametrically, using suitably modified series estimators. Presented is the efficient method of estimation, which relies on simple prefiltering of the data and preestimation of the model. The test for the adequacy of model specification is also developed. Our model and statistical methods are applied to analyze the U.S. automobile demand function.

Modeling of Electricity Demand for Azerbaijan: Time-Varying Coefficient Cointegration Approach

“…This is the seminal study that leads to an extensive using of TVC approach by many other works. They discussed the TVC approach that is developed by [21] in detail. They found that income elasticity varies over time, reflecting rapid development of the Korean economy.…”

“…An omitted variable or misspecification errors might be the examples for the violation of these features. Therefore, for conducting valid inferences on the parameters of the model, we use the canonical cointegrating regression (CCR) method proposed by [46], which was shown to be valid for a class of TVC models including (4) by [21]. We leave a more detailed discussion of the estimation procedure to [22].…”

Co-integration Between Globalisation and Economic Growth

“…Traditional co-integration tests are mostly based on the assumption of constant co-integrating vectors and this may be one of the reasons why in many cases co-integration has not been found among series that are seemingly co-integrated (as well underlined, among others, by Park and Hahn [12] ).…”

Cointegration tests under multiple regime shifts: An application to the stock price–dividend relationship

“…To see why Park and Hahn's (1999) approach may be useful to detect Markov switchingtype behavior, note that Park and Hahn (1999) assume that the elements of t are of the form ' (t=T ) ; where ' (r) has a Fourier ‡exible functional form. Let…”

“…In addition, we analyze the test for the null hypothesis of cointegration proposed by McCabe et al (1997). Finally, we investigate whether or not the time-varying cointegration approach of Park and Hahn (1999) is able to detect Markov switching-type cointegration. While this is a more general formulation that detects smoothly changing cointegrating coe¢ cients, it could be able to detect our speci…cation, which only considers two possible states.…”