Periodic Integration & Cointegration: With Applications to the New Zealand Aggregate Consumption Functions
Harrison
Robin
Smith
Aaron
1994
This study addresses the theory and application of periodic integration and cointegration. A strategy for testing for periodic integration, originally proposed by Osborn et al. (1988) is further developed and, along with the Vector of Quarters test (Franses (1994)), is applied to aggregate New Zealand consumption and disposable income data. Consumption is found to be possibly periodically integrated while income appears to be seasonally integrated. Where appropriate, the bootstrap technique is used to simulate critical values for these tests. A representation for a bivariate periodic cointegration model, including its associated error correction mechanism, is derived. However, because of limited degrees of freedom, a parsimonious approximation is proposed. This is applied to the New Zealand aggregate consumption function and its results briefly compared to those from a non-periodic cointegration model. Neither model is found to be superior in all respects.
2008