A1041
Title: Johansen test with Fourier-type smooth non-linear trends in cointegrating relations
Authors: Takamitsu Kurita - Fukuoka University (Japan)
Mototsugu Shintani - University of Tokyo (Japan) [presenting]
Abstract: The objective is to develop a methodology for testing cointegrating rank in vector autoregressive (VAR) models subject to Fourier-type smooth non-linear deterministic trends. A class of trigonometric functions is incorporated into VAR models in such a way that one can simultaneously examine non-linear and non-stationary characteristics of various types of time series data. Then, log-likelihood ratio test statistics for the selection of cointegrating rank are investigated, leading to the approximation of limit quantiles of the statistics by using simulation. A Monte Carlo analysis is also conducted, along with an empirical application to economic data, in order to demonstrate the usefulness of the proposed methodology in a practical context.
