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Functional cointegration: definition and nonparametric estimation

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  • Pitarakis, Jean-Yves

Abstract

We formally define a concept of functional cointegration linking the dynamics of two time series via a functional coefficient. This is achieved through the use of a concept of summability as an alternative to I(1)'ness which is no longer suitable under nonlinear dynamics. We subsequently introduce a nonparametric approach for estimating the unknown functional coefficients. Our method is based on a piecewise local least squares principle and is computationally simple to implement. We establish its consistency properties and evaluate its performance in finite samples.

Suggested Citation

  • Pitarakis, Jean-Yves, 2012. "Functional cointegration: definition and nonparametric estimation," MPRA Paper 38846, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:38846
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    More about this item

    Keywords

    Functional Coefficients; Unit Roots; Cointegration; Piecewise Local Linear Estimation;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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