Trend-stationarity and cointegration

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hugo_eviews
Posts: 6
Joined: Tue Aug 29, 2017 11:45 am

Trend-stationarity and cointegration

Postby hugo_eviews » Wed Aug 30, 2017 3:18 pm

Hi,

I'm trying to build a model using 2 trend-stationary variables (my question is also valid for 1 trend-stationary and 1 unit root variables) and was wondering if the regular cointegration methods can be applied to this type of process? From what I understand, two variables are cointegrated if they share a common stochastic trend, however, could this also apply to variables that shares a deterministic trend? Moreover, does including a Trend in the cointegration equation (test) solves my problem?

Thanks.

EViews Mirza
Posts: 29
Joined: Sat Apr 22, 2017 8:23 pm

Re: Trend-stationarity and cointegration

Postby EViews Mirza » Wed Aug 30, 2017 3:42 pm

Have a look at this document to help you out. Indeed, two trend stationary variables can be co-integrated. What happens, however, is that the cointegrating relationship purges the effect of the deterministic trend. If this was not the case, it would imply the presence of a trend in the cointegrating equation, making the latter I(1) rather than I(0).

https://www.fmf.uni-lj.si/finmath09/Cointegration.pdf

hugo_eviews
Posts: 6
Joined: Tue Aug 29, 2017 11:45 am

Re: Trend-stationarity and cointegration

Postby hugo_eviews » Thu Aug 31, 2017 8:02 am

This is exactly what I was looking for. Thanks for sharing this document!

hugo_eviews
Posts: 6
Joined: Tue Aug 29, 2017 11:45 am

Re: Trend-stationarity and cointegration

Postby hugo_eviews » Thu Aug 31, 2017 8:39 am

Follow up question.

Can anyone help me with the intuition of the different option provided for the different cointegration test (i.e. trend, no trend, constant...)

Is it better to test for cointegration using a trend in the equation when dealing with trend-stationary data. What factors would push me to use the trend instead of no trend in the cointegrating equation?

Thanks

sam SAM
Posts: 28
Joined: Tue Dec 26, 2017 4:31 am

Re: Trend-stationarity and cointegration

Postby sam SAM » Wed Dec 27, 2017 3:09 am

Good Morning, Hello,

Please, I found in the test of the stationarity of a series with the first difference that it is of type TS (Trend Stationary). in this case, should we make the detrend or the differentiation?
And if we apply the detrend it implies that this variable is is integrated of order 1 (I(1)) or 2 (I(2))?

Best wishes.

sam SAM
Posts: 28
Joined: Tue Dec 26, 2017 4:31 am

Re: Trend-stationarity and cointegration

Postby sam SAM » Sat Jan 13, 2018 10:20 am

Good Evening
Please, how do you know about a co-integration with / without constant and / or trend for an ARDL model?

sam SAM
Posts: 28
Joined: Tue Dec 26, 2017 4:31 am

Trend-stationarity and stationarity

Postby sam SAM » Wed Jan 17, 2018 3:54 pm

Good Evening
Please, I have a series it is stationary of trend (TS), in this case the, we consider it like a stationary series?

Information: With the ADF and PP test, it is stationary in model 3 because this series has no unit root.

Know that everyone takes stationary trend series (they contain no unit root) as if it is stationary, but why?

cordially


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