Extended complex error correction models for seasonal cointegration

Abstract

In this paper, we extend the complex error correction model (ECM) of [Cubadda, G. (2001). Complex reduced rank models for seasonally cointegrated time series. Oxford Bulletin of Economics and Statistics, 63, 497-511] to models with two types of deterministic terms: (i) restricted seasonal dummies and constant; (ii) restricted seasonal dummies and unrestricted constant. These types of deterministic terms are most frequently adopted in the analysis of seasonal cointegration by many practitioners and researchers, because the other type - where all seasonal dummies and constant terms are unrestricted - may yield oscillating trends. We obtain the limiting distribution of the likelihood ratio (LR) test for the seasonal cointegrating (CI) rank in the extended models. We also provide asymptotic and finite critical values for the test. (c) 2008 The Korean Statistical Society. Published by Elsevier B.V. All rights reserved.