TESTING THE JOINT HYPOTHESIS OF RATIONALITY AND NEUTRALITY UNDER SEASONAL COINTEGRATION - THE CASE OF KOREA

With seasonally adjusted data, and using a procedure based on nonseaso nal cointegration, the macro rational expectations hypothesis of ratio nality and money neutrality is rejected at the 10% level. However, wit h seasonally unadjusted data, and using a procedure based on seasonal cointegration, the same hypothesis is not rejected. The paper provides an example of how deseasonalizing variable by variable can distort em pirical inference in two important ways: by introducing noninvertibili ty at the seasonal frequencies or by failing to take into account the presence of cointegrating relations at these frequencies.