Summary
The idea of cointegration is extended by allowing the coefficients in a dynamic model to vary over time. Each variable in the system is individually nonstationary, but there may exist a common factor or “permanent component” of the system. A richer concept of equilibrium in dynamic structure is introduced, and an application of the varying parameter regression (VPR) model to cointegrating regression is developed for testing the existence of such a relationship. Some properties of the time-varying parameter (TVP) cointe-grated process and of the estimation procedure are suggested, and an empirical example is illustrated by using US data on prices and wages.
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© 1991 Springer-Verlag Berlin Heidelberg
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Granger, C.W.J., Lee, H.S. (1991). An Introduction to Time-Varying Parameter Cointegration. In: Hackl, P., Westlund, A.H. (eds) Economic Structural Change. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-06824-3_10
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DOI: https://doi.org/10.1007/978-3-662-06824-3_10
Publisher Name: Springer, Berlin, Heidelberg
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