Department of Economics and Business Economics

An invariance property of the common trends under linear transformations of the data

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  • School of Economics and Management
It is well known that if X(t) is a nonstationary process and Y(t) is a linear function of X(t), then cointegration of Y(t) implies cointegration of X(t). We want to find an analogous result for common trends if X(t) is generated by a finite order VAR. We first show that Y(t) has an infinite order VAR representation in terms of its prediction errors, which are a linear process in the prediction error for X(t). We then apply this result to show that the limit of the common trends for Y(t) are linear functions of the common trends for X(t).
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages14
Publication statusPublished - 2010

    Research areas

  • Cointegration vectors, common trends, prediction errors

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