An I(2) cointegration model with piecewise linear trends
Article first published online: 7 JUN 2011
© 2011 The Author(s). The Econometrics Journal © 2011 Royal Economic Society
The Econometrics Journal
Volume 14, Issue 2, pages 131–155, July 2011
How to Cite
Kurita, T., Bohn Nielsen, H. and Rahbek, A. (2011), An I(2) cointegration model with piecewise linear trends. The Econometrics Journal, 14: 131–155. doi: 10.1111/j.1368-423X.2010.00333.x
- Issue published online: 7 JUN 2011
- Article first published online: 7 JUN 2011
- First version received: November 2009; final version accepted: August 2010
- Likelihood analysis;
- Piecewise linear trends;
- Rank test;
- US consumption.
Summary 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.