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

Søren Johansen, Katarina Juselius, Roman Frydman, Michael Goldberg

    Research output: Contribution to journalArticle

    Abstract

    This paper discusses the I(2) model with breaks in the deterministic component and illustrates the model with an analysis of German and US prices, exchange rates, and interest rates in the period 19751999. 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 (US)
    Pages (from-to)117-129
    Number of pages13
    JournalJournal of Econometrics
    Volume158
    Issue number1
    DOIs
    StatePublished - Sep 2010

    Fingerprint

    Linear Trend
    Testing Hypotheses
    Exchange rate
    Piecewise Linear
    Testing
    Likelihood Ratio Test
    Interest Rates
    Categorical or nominal
    Regularity
    Model
    Restriction
    Demonstrate
    Hypothesis testing
    Exchange Rates
    Hypothesis Testing
    Interest rates
    Likelihood ratio test
    Floating exchange rates
    Exchange rates
    Nominal exchange rate

    Keywords

    • Cointegrated VAR
    • Long swings puzzle
    • PPP
    • Test of overidentification

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Applied Mathematics
    • History and Philosophy of Science

    Cite this

    Testing hypotheses in an model with piecewise linear trends. An analysis of the persistent long swings in the Dmk/$ rate. / Johansen, Søren; Juselius, Katarina; Frydman, Roman; Goldberg, Michael.

    In: Journal of Econometrics, Vol. 158, No. 1, 09.2010, p. 117-129.

    Research output: Contribution to journalArticle

    Johansen, Søren ; Juselius, Katarina ; Frydman, Roman ; Goldberg, Michael. / Testing hypotheses in an model with piecewise linear trends. An analysis of the persistent long swings in the Dmk/$ rate. In: Journal of Econometrics. 2010 ; Vol. 158, No. 1. pp. 117-129.
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