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We use the identity

Generally we would like the mean of an equilibrium errorto be equal to zero!

Which conditions should the expected cointegration mean satisfy?

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The case with a constant and a trend

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When there is a linear time trend in the equations, then:

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A simulated example

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Five cases

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The MA representation with determ. comp.

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The MA representation with a trend in the equations:

Linear trends in the variables can derive from:

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Dummy variables and the VAR

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The simplified model can be written as:

The expected value of the process and the cointegration relations becomes:

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The dynamic properties of the data can now be expressed as:

where

It is easy to see that:

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Illustration

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Are the observed outliers additive or innovational?

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An additive outlier in real money stock

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The Danish VAR model with dummy variables

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The unrestricted VAR with dummies

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We need to distinguish between:


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