[quote=“jpfeifer”]a.) Yes, both are OK.
b.) This is a matter of taste. Most people check whether the data after detrending look OK.
c.) Yes, this is the implicit assumption you are making. The linearly detrended data is equivalent to the stationary data coming from your model. Of course, you could linearly detrend your model variables as well, but most of the time, this will not do anything, because they are not really trending (unless you have really a lot of persistence so that the data can drift from the mean for a long time)
d.) Conceptually, this is not a problem. You can do this. But you might have to defend it to your referees, who might be skeptical that you have two different concepts of trend (of course demeaned first differences will also take out a purely linear trend)[/quote]
Dear Johannes,
Generally people use “credit spread” data in LEVEL during estimation. Could I ask if it is right to use linear detrend method to deal with credit spread data ?
Thanks in advance,
Huan