COINTEGRATING REGRESSIONS WITH TIME VARYING COEFFICIENTS

This paper considers cointegraling regressions with time varying coefficients. The coefficients are modeled as smooth functions evolving over time. It is shown that they can be estimated nonparametrically, using suitably modified scries estimators. Presented is the efficient method of estimation, which relics on simple prefiltering of the data and prccslimation of the model. The lest for the adequacy of model specification is also developed. Our model and statistical methods are applied to analyze the U.S. automobile demand function.