Re: [Gretl-users] Deterministic trend in VAR

MJ, If your data have deterministic trends, then unit root tests should pick that up (though there may be a problem in small samples). If you include a trend but the dgp is stationary, then a t-test should conclude that the trend coefficient is zero. Presumably your unit root tests reject the null, right? From: gretl-users-bounces(a)lists.wfu.edu [mailto:gretl-users-bounces@lists.wfu.edu] On Behalf Of Muheed Jamaldeen Sent: Monday, December 12, 2011 5:52 AM To: Gretl list Subject: [Gretl-users] Deterministic trend in VAR Hi all, Just a general VAR related question. When is it appropriate to include a deterministic time trend in the reduced form VAR? Visually some of the data series (not all) look like they have trending properties. In any case, does the inclusion of the time trend matter if the process is stable and therefore stationary (i.e. the polynomial defined by the determinant of the autoregressive operator has no roots in and on the complex unit circle) without the time trend term. Other than unit root tests, is there a better way to test whether the underlying data generating process has a stochastic or deterministic process? I am mainly interested in the impulse responses. Cheers, Mj