On the role of seasonal intercepts in seasonalcointegrationPhilip

In the paper we consider the role of seasonal intercepts in seasonal cointegration analysis. For the nonseasonal unit root, such intercepts can generate a stochastic trend with a drift common to all observations. For the seasonal unit roots, however, we show that unrestricted seasonal intercepts generate trends that are diierent across the seasons. Since such seasonal trends may not appear in economic data, we propose a modiied empirical method to test for seasonal cointegration. We evaluate our method using Monte Carlo simulations and using a four-dimensional data set of Austrian macroeconomic variables. Acknowledgments This work was initiated when the second author visited the Tinbergen Institute Rotterdam (February 1995). Its hospitality is gratefully acknowledged. The rst author thanks the Royal Netherlands Academy of Arts and Sciences for its nancial support. We thank an anonymous referee for some helpful comments.