Modelling global temperature trends using cointegration and smooth transitions

We analyse annual northern and southern hemisphere temperature data from 1856 to 1998 using models that contain either stochastic linear trends or deterministic non-linear trends. We find that changes in southern hemisphere temperatures lead to changes in northern hemisphere temperatures, with no evidence of feedback, in both types of model. Where the models differ is that the assumption of stochastic linear trends leads to a common trend with constant growth throughout the sample period, whereas with deterministic non-linear trends there are divergent trend growth paths in the two hemispheres after the early part of the twentieth century.