Inference on common trends in a cointegrated nonlinear SVAR

Journal article

Abstract:: We consider the problem of performing inference on the number of common stochastic trends when data is generated by a cointegrated CKSVAR (a two-regime, piecewise affine SVAR; Mavroeidis, 2021), using a modified version of the Breitung (2002) multivariate variance ratio test that is robust to the presence of nonlinear cointegration (of a known form). To derive the asymptotics of our test statistic, we prove a fundamental LLN-type result for a class of stable but nonstationary autoregressive processes, using a novel dual linear process approximation. We show that our modified test yields correct inferences regarding the number of common trends in such a system, whereas the unmodified test tends to infer a higher number of common trends than are actually present, when cointegrating relations are nonlinear.

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Publisher:: Wiley
Journal:: Oxford Bulletin of Economics and Statistics More from this journal
Pages:: 1–19
Publication date:: 2026-05-28
Acceptance date:: 2026-04-13
DOI:: 10.1111/obes.70078
EISSN:: 1468-0084
ISSN:: 0305-9049

Language:: English
Keywords:: cointegration

common trends

nonlinear SVAR

variance ratio test
Pubs id:: 2405513
Local pid:: pubs:2405513
Deposit date:: 2026-04-13
ARK identifier:: ark:/29072/ora_aac33502087a4280b932375fd53dc335

Copyright holder:: Duffy and Jiao
Rights statement:: © 2026 The Author(s). Oxford Bulletin of Economics and Statistics published by Oxford University and John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.

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