Title: Cointegration: Its Fatal Flaw and a Proposed Solution
Abstract: It has been argued that whenever regression models involve nonstationary and trending variables, the estimation methods appropriate to stationary series cannot be applied to such models and instead require cointegration techniques. Unfortunately, the extant methodology applied to cointegration is a trap: if the error term of a cointegration regression is made up of omitted relevant regressors, then, even though they are integrated to the same order, the dependent and the independent variables of the regression are not cointegrated! This paper presents a way out this dilemma by proposing a remedy based on time-varying coefficient (TVC) modeling that over-comes all the shortcomings described in the paper.
Publication Year: 2019
Publication Date: 2019-01-01
Language: en
Type: article
Indexed In: ['crossref']
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