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 different across the seasons. Since such seasonal trends may not appear in economic data, we propose a modified 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.

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Keywords Monte Carlo simulation, cointegration, seasonality, unit roots
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Journal Oxford Bulletin of Economics and Statistics
Franses, Ph.H.B.F, & Kunst, R.M. (1999). On the Role of Seasonal Intercepts in Seasonal Cointegration. Oxford Bulletin of Economics and Statistics, 409–433. doi:10.1111/1468-0084.00136