Common trends and cycles in I(2) VAR systems |
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Authors: | Paolo Paruolo |
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Affiliation: | Department of Economics, University of Insubria, Via Ravasi 2, 21100 Varese, Italy |
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Abstract: | This paper analyzes common cycles in I(2) vector autoregressive (VAR) systems. We consider different choices of stationary variables extracted from a VAR, including deviations from equilibria. This extension is based on the equilibrium dynamics representation of the system, introduced in this paper. Inference on the number of common features is addressed via reduced rank regression, as well as estimation of the cofeature relations and testing. An application to Australian prices is presented; it is found that the deviation from one equilibrium relation is an innovation process, whereas no common cycles can be obtained for the acceleration rates. |
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Keywords: | C32 C51 C52 |
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