An I(2) cointegration model with piecewise linear trends

Takamitsu Kurita; Heino Bohn Nielsen; Anders Rahbek

doi:10.1111/j.1368-423x.2010.00333.x

An I(2) cointegration model with piecewise linear trends

Takamitsu Kurita, Heino Bohn Nielsen, Anders Rahbek

Department of Economics

7 Citations (Scopus)

Abstract

This paper presents likelihood analysis of the I(2) cointegrated vector autoregression which allows for piecewise linear deterministic terms. Limiting behaviour of the maximum likelihood estimators are derived, which is used to further derive the limiting distribution of the likelihood ratio statistic for the cointegration ranks, extending Nielsen and Rahbek. The provided asymptotic theory extends also the results in Johansen et al. where asymptotic inference is discussed in detail for one of the cointegration parameters. An empirical analysis of US consumption, income and wealth, 1965–2008, is performed, emphasizing the importance of a change in nominal price trends after 1980.

Original language	English
Journal	Econometrics Journal
Volume	14
Issue number	2
Pages (from-to)	131-155
Number of pages	25
ISSN	1368-4221
DOIs	https://doi.org/10.1111/j.1368-423x.2010.00333.x
Publication status	Published - Jul 2011

Keywords

Faculty of Social Sciences

Access to Document

10.1111/j.1368-423x.2010.00333.x

Cite this

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AB - This paper presents likelihood analysis of the I(2) cointegrated vector autoregression which allows for piecewise linear deterministic terms. Limiting behaviour of the maximum likelihood estimators are derived, which is used to further derive the limiting distribution of the likelihood ratio statistic for the cointegration ranks, extending Nielsen and Rahbek. The provided asymptotic theory extends also the results in Johansen et al. where asymptotic inference is discussed in detail for one of the cointegration parameters. An empirical analysis of US consumption, income and wealth, 1965–2008, is performed, emphasizing the importance of a change in nominal price trends after 1980.

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