Testing hypotheses in an I(2) model with piecewise linear trends. An analysis of the persistent long swings in the Dmk/$ rate

Søren Johansen, Katarina Juselius, Roman Frydman, Michael Goldberg

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39 Citations (Scopus)

Abstract

This paper discusses the I(2) model with breaks in the deterministic component and illustrates with an analysis of German and US prices, exchange rates, and interest rates in 1975--1999. It provides new results on the likelihood ratio test of overidentifying restrictions on the cointegrating relations when they contain piecewise linear trends. One important aim of the paper is to demonstrate that a structured I(2) analysis is useful for a better understanding of the empirical regularities underlying the persistent swings in nominal exchange rates, typical in periods of floating exchange rates.
Original languageEnglish
JournalJournal of Econometrics
Volume158
Issue number1
Pages (from-to)117-129
Number of pages13
ISSN0304-4076
DOIs
Publication statusPublished - 2010

Keywords

  • Faculty of Social Sciences
  • PPP
  • long swings puzzle
  • cointegrated VAR
  • test of overidentification

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