This paper derives a method for estimating and testing the Linear Quadratic Adjustment Cost (LQAC) model when the target variable and some of the forcing variables follow I(2) processes. Based on a forward-looking error-correction formulation of the model it is shown how to obtain strongly...

Multicointegration, in the sense of Granger and Lee (1990), frequently occurs in models of stock-flow adjustment and implies cointegration amongst I(2) variables and their differences (polynomial cointegration). The purpose of this article is two-fold. First, we demonstrate that based on a...

In this paper we present an equilibrium model of commodity spot (St) and future (Ft) prices, with finite elasticity of arbitrage services and convenience yields. By explicitly incorporating and modeling endogenously the convenience yield, our theoretical model is able to capture the existence of...

We define the extreme values of any random sample of size n from a distribution function F as the observations exceeding a threshold and following a type of generalized Pareto distribution (GPD) involving the tail index of F. The threshold is the order statistic that minimizes a...

The notion of separation in cointegrated systems helps identifying possible sub-system structures that may reduce the complexity of larger systems by yielding a more parsimonous representation of the time series. In this paper we demonstrate that although the subsystem cointegration analysis in...

In this paper we develop a regime switching model which can generate long memory (fractional integration) in each of the regime states. This property is relevant in a number of cases. For instance, the deregulated market for electricity power in the Nordic countries is characterized by...