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Time-varying cointegration, identification, and cointegration spaces

Author

Listed:
  • Martins Luis Filipe

    (ISCTE – Business School, Av-das Forças Armadas, 1649-026 Lisboa, Portugal)

  • Gabriel Vasco J.

    (University of Surrey and NIPE-UM)

Abstract

We derive the conditions under which time-varying cointegration leads to cointegration spaces that may be time-invariant or, in contrast, time-varying. The model of interest is a vector error correction model with arbitrary time-varying cointegration parameters. We clarify the role of identification and normalization restrictions and show that structural breaks in error-correction models may actually correspond to stable long-run economic relationships, as opposed to a single-equation setup, in which an identification restriction is imposed. Moreover, we show that, in a time-varying cointegrating relationship with a given number of variables and cointegration rank, there is a minimum number of orthogonal Fourier functions that most likely guarantees time-varying cointegrating spaces.

Suggested Citation

  • Martins Luis Filipe & Gabriel Vasco J., 2013. "Time-varying cointegration, identification, and cointegration spaces," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 17(2), pages 199-209, April.
    • Handle: RePEc:bpj:sndecm:v:17:y:2013:i:2:p:199-209:n:3
    DOI: 10.1515/snde-2012-0022
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    References listed on IDEAS

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    Cited by:

    1. Bampinas, Georgios & Panagiotidis, Theodore, 2015. "Are gold and silver a hedge against inflation? A two century perspective," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 267-276.

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