State space modelling and spectral analysis of cointegrated vector processes (evidence from the U.S. and Scandinavian economies)

Abstract

We provide new evidence on the impact of the U.S. economy on two Scandinavian economies (Finland and Sweden). Initially, we test for the presence of unit roots among the observed input-output processes. Next, Granger causality and cointegra-tion of the system is explicitly tested, to justify the estimated vector-valued state space model. The trend and cyclical components of the endogenous vector are extracted by three alternative decomposition methods. Finally, the content of the cyclical component is analysed by spectral analysis.