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