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The University of Southampton
EconomicsPart of Economic, Social and Political Science

1205 Functional Cointegration: Definition and Nonparametric Estimation (J. Pitarakis & A. Banerjee)

Functional Cointegration: Definition and Nonparametric Estimation.

Paper 1205

Authors: Jean-Yves Pitarakis (University of Southampton) & Anurag Banerjee (Durham University)



We formally define a concept of functional cointegration linking the dynamics of two time series via a functional coefficient. This is achieved through the use of a concept of summability as an alternative to I (1)'ness which is no longer suitable under nonlinear dynamics. We subsequently introduce a nonparametric approach for estimating the unknown functional coefficients. Our method is based on a piecewise local least squares principle and is computationally simple to implement. We establish its consistency properties and evaluate its performance in finite samples.

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