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Clegg, Matthew
Krauss, Christopher
Rende, Jonas
Year of Publication: 
Series/Report no.: 
FAU Discussion Papers in Economics No. 05/2017
Friedrich-Alexander-Universität Erlangen-Nürnberg, Institute for Economics, Nürnberg
Partial cointegration is a weakening of cointegration, allowing for the residual series to contain a mean-reverting and a random walk component. Analytically, the residual series is described by a partially autoregressive process. The partialCI package provides estimation, testing, and simulation routines for PCI models in state space. We illustrate the functionality with two examples: A financial application in the context of pairs trading and a macroeconomic application, i.e., the relationship between GDP and consumption. For both examples, we show that the variables are not cointegated in the classic sense, but can be modeled with partial cointegration.
R software
partial cointegration
pairs trading
permanent components
transient components
Document Type: 
Working Paper

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