Cointegration and Long-Horizon Forecasting

Implications of Cointegration for Forecasting: A Review and an Empirical Analysis

Cointegration has different theoretical implications for forecasting. Several empirical studies have compared the out of sample forecasting performance of cointegrted VECMs against unrestricted VARs in levels and in differences. The results of these studies have been generally mixed and inconclusive. This paper provides a comprehensive review over the subject, and also examines the effects...

Estimating And Forecasting Demand For Broad Money In Iran Through Cointegration Analysis And Stochastic Simulation

Forecasting Cigarette Consumption in Greece: An empirical investigation with cointegration analysis

This paper investigates the relationship between cigarette consumption per capita net disposable income, cigarette price index, and per capita expenditure for education. In this empirical analysis the Johansen cointegration test is applied in conjunction with the vector error correction model. Finally, the forecasting technique of cigarettes consumption in Greece using cointegration models is p...

Forecasting interest rates and inflation from bivariate time-series models: Can threshold cointegration models beat linear structures?

Using data from Germany, Japan, UK, and the U.S., we explore possible threshold cointegration in nominal shortand long-run interest rates with corresponding inflation rates. Traditional cointegration implies perfect mean reversion in real rates and hence confirms the Fisher hypothesis. Threshold cointegration accounts for the possibility that this mean reversion is active only conditional on ce...

Cointegration and Long-Run Asset Allocation

We show that economic restrictions of cointegration between asset cash flows and aggregate consumption have important implications for return dynamics and optimal portfolio rules, particularly for long investment horizons. When cash flows and consumption share a common stochastic trend (i.e., are cointegrated), temporary deviations between their levels forecast long-horizon dividend growth rate...