A Bayesian Approach to Modeling Time-Varying Cointegration and Cointegrating Rank. Issue 2 (3rd April 2018)

• Record Type: Journal Article
• Authors: Chua, Chew Lian; Tsiaplias, Sarantis
• Is Part Of: Journal of business & economic statistics. Volume 36:Issue 2(2018)
• Page Start: 267
• Page End: 277
• Publication Date: 2018-04-03
• Subjects: Cointegration tests -- Error correction models -- Singular value decomposition -- TVP; Economics -- Statistical methods -- Periodicals; Commercial statistics -- Periodicals; Économie politique -- Méthodes statistiques -- Périodiques; Statistique commerciale -- Périodiques; 330.015195
• DOI: 10.1080/07350015.2016.1166117
• Languages: English
• ISSNs: 0735-0015

Abstract

Abstract : A multivariate model that allows for both a time-varying cointegrating matrix and time-varying cointegrating rank is presented. The model addresses the issue that, in real data, the validity of a constant cointegrating relationship may be questionable. The model nests the submodels implied by alternative cointegrating matrix ranks and allows for transitions between stationarity and nonstationarity, and cointegrating and noncointegrating relationships in accordance with the observed behavior of the data. A Bayesian test of cointegration is also developed. The model is used to assess the validity of the Fisher effect and is also applied to equity market data.