The Making of "Estimation of Common Long-Memory Components in Cointegrated Systems"

The eighties were very good years for music as well as econometrics. In time-series econometrics, the first half of that decade was dominated by research onunit roots while cointegration was the queen of the second half. Estimation andtesting of a cointegrated system were the key questions to answer.When I started my dissertation at the end of the eighties, under the super-vision of Clive Granger and Robert Engle, you could sense that everyone was ofthe opinion that the testing problem of the cointegration rank had been solvedby Johansen (1988). Johansen applied reduced rank regression techniques to thefollowing error correction model (ECM) (Granger’s old notation is used to keepthe spirit of the eighties)Δ