Browsing by Subject "Time-varying cointegration"

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    Time-varying cointegration and the Kalman filter
    (Taylor and Francis, 2022) Eroğlu, B. A.; Miller, J. I.; Yiğit, Taner
    We show that time-varying parameter state-space models estimated using the Kalman filter are particularly vulnerable to the problem of spurious regression, because the integrated error is transferred to the estimated state equation. We offer a simple yet effective methodology to reliably recover the instability in cointegrating vectors. In the process, the proposed methodology successfully distinguishes between the cases of no cointegration, fixed cointegration, and time-varying cointegration. We apply these proposed tests to elucidate the relationship between concentrations of greenhouse gases and global temperatures, an important relationship to both climate scientists and economists.