Trend-stationarity and cointegration
Posted: 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.
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.