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I(2) symptoms in I(1) models Purpose: soft introduction to I(2) basic intuition for the I(2) structure interpretation of I(2) trend in prices is a double.

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Presentation on theme: "I(2) symptoms in I(1) models Purpose: soft introduction to I(2) basic intuition for the I(2) structure interpretation of I(2) trend in prices is a double."— Presentation transcript:

1 I(2) symptoms in I(1) models Purpose: soft introduction to I(2) basic intuition for the I(2) structure interpretation of I(2) trend in prices is a double unit root a property of a very long time-series? how can we check for I(2)’ness in the data are the I(1) test procedures invalid when the data are I(2)? can we analyze nominal variables without using the formal I(2) model?

2 Linking the I(1) and the I(2) model

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4 When we estimate the VAR I(1) model with I(2) data:

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6 Should we model persistent behavior in growth rates deterministically of stochastically? No clear answer!

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8 Three possibilities:

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11 I(2) symptoms in I(1) models The specification of the VAR model:

12 The characteristic roots when the data are I(2)

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19 Transforming I(2) data to I(1)

20 Implications of I(2)

21 Testing long-run price homogeneity

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24 Assuming that the broken trend cancels in the cointegration relations


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