Get Exogeneity in Error Correction Models PDF

By Jean-Pierre Urbain

ISBN-10: 3540566392

ISBN-13: 9783540566397

ISBN-10: 3642957064

ISBN-13: 9783642957062

In the hot years, the learn of cointegrated time sequence and using blunders correction versions became highly regarded within the econometric literature. This booklet presents an research of the concept of (weak) exogeneity, that's essential to maintain legitimate inference in sub-systems, inthe framework of blunders correction versions (ECMs). in lots of functional occasions, the utilized econometrician desires to introduce "structure" on his/her version with a view to get economically significant coefficients. For thispurpose, ECMs in structural shape offer an attractive framework, permitting the researcher to introduce (theoretically stimulated) identity regulations at the long term relationships. therefore, the validity of the inference relies on a couple of stipulations that are investigated right here. In particular,we indicate that orthogonality assessments, usually used to check for susceptible exogeneity or for basic misspecification, behave poorly in finite samples and are frequently now not very necessary in cointegrated systems.

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Extra resources for Exogeneity in Error Correction Models

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16) 56 CHAPTER 3. 15).

Xt-l)', • n is the lag length truncation, • the parameters {IIi} and E are function of o. We also assume time homogeneity of the conditional process so that the IIi'S and E t are time invariant (see Spanos, 1988). 8): II(L) = rr~=1 lIi Li . 52 CHAPTER 3. WEAK EXOGENEITY IN ECM We may now state some assumptions about Xt and about the II*(L) polynomial in order to consider nonstationary (co )integrated processes. We make the following two simplifying assumptions: Assumption 1 All k components of Xt are nonstationary variables, integrated of order one, denoted by Xt '" /(1) Assumption 2 II*(1) is of reduced rank r a (k X r) matrices.

The vector a is then called the cointegrating vector. e. each varaibles in Xt is 1(1) but a linear combination of them (Zt) is stationary. When an economicallly meaningful interpretation can be attached to this linear combination it implies that, under the hypothesis of cointegration, the components of Xt do not drift too much apart and are tied together by some long run equilibrium relation. Again a graphical illustration may prove interesting. 4 reports the evolution of two independent 1(1) series with non-zero drift terms (p.

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Exogeneity in Error Correction Models by Jean-Pierre Urbain


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