Linear Cointegration of Nonlinear Time Series with an Application to Interest Rate Dynamics
We develop a representation of nonlinear integrated vector processes based on the martingale representation theorem of Hall and Heyde (1980). In the representation, linear combinations of the components of the vector process may be stationary, so the system may be linearly cointegrated, yet exhibit nonlinear stationary, or short-run, dynamics. We test for linear cointegration relations with nonlinear dynamics in weekly U.S. interest rates. We find that the individual rates are I(1) and that the system is linearly cointegrated. Furthermore, both cointegration relations exhibit nonlinear dynamics so the the system's short-run dynamics are nonlinear.
Year of publication: |
2008
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Authors: | D, Nesmith Travis ; E, Jones Barry |
Published in: |
Studies in Nonlinear Dynamics & Econometrics. - De Gruyter, ISSN 1558-3708. - Vol. 12.2008, 1, p. 1-18
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Publisher: |
De Gruyter |
Saved in:
Online Resource
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