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...

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...

It is well-known that if the forcing variable of a present value (PV) model is an integrated process, then the model will give rise to a particular cointegrating restriction. In this paper we demonstrate that if the PV relation is exact, such that no additive error term appears in the...

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...