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Diagnostic Checks for Single-Equation Error-Correction and Autoregressive Distributed Lag Models

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  • Gerrard, W J
  • Godfrey, L G

Abstract

Single equation error correction models (ECMs) are widely used in the analysis of cointegrated variables. It is important to check the specification of ECMs using diagnostic tests. Monte Carlo evidence is reported that shows that the finite sample significance levels of such tests can be sensitive to the method used to estimate long-run coefficients that yield the error-correction term of the ECM. Estimates of long-run coefficients based upon autoregressive-distributed lag (ADL) models are recommended. The applicability of diagnostic checks to ADL models for integrated variables is examined. An indirect approach to obtaining asymptotically valid checks is proposed. Copyright 1998 by Blackwell Publishers Ltd and The Victoria University of Manchester

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Bibliographic Info

Article provided by University of Manchester in its journal The Manchester School of Economic & Social Studies.

Volume (Year): 66 (1998)
Issue (Month): 2 (March)
Pages: 222-37

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Handle: RePEc:bla:manch2:v:66:y:1998:i:2:p:222-37

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Cited by:
  1. David E. A. Giles, & Patrick J. Caragata, 1999. "The Learning Path of the Hidden Economy: The Tax Burden and Tax Evasion in New Zealand," Econometrics Working Papers 9904, Department of Economics, University of Victoria.
  2. Roseline N. Misati & Esman M. Nyamongo & Anne W. Kamau, 2011. "Interest rate pass-through in Kenya," International Journal of Development Issues, Emerald Group Publishing, vol. 10(2), pages 170-182, July.
  3. Michael R. Wickens & Roberto Motto, 2001. "Estimating shocks and impulse response functions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 371-387.
  4. Joseph H. Davis & Douglas A. Irwin, 2007. "The Antebellum U.S. Iron Industry: Domestic Production and Foreign Competition," NBER Working Papers 13451, National Bureau of Economic Research, Inc.
  5. Virmantas Kvedaras, 2005. "Explanation of Economic Growth Differences in the CEE Countries: Importance of the BOP Constraint," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 5(2), pages 48-65, July.
  6. Xia, Yan & Susanto, Dwi & Rosson, C. Parr, III, 2007. "Testing the Market Integration in Regional Cantaloupe and Melon Markets between the U.S. and Mexico: An Application of Error Correction Model," 2007 Annual Meeting, February 4-7, 2007, Mobile, Alabama 34844, Southern Agricultural Economics Association.
  7. Jesús Crespo-Cuaresma & Balázs Égert & Thomas Reininger, 2004. "Interest Rate Pass-Through in New EU Member States: The Case of the Czech Republic, Hungary and Poland," William Davidson Institute Working Papers Series 2004-671, William Davidson Institute at the University of Michigan.
  8. Kanas, Angelos & Kouretas, Georgios P., 2005. "A cointegration approach to the lead-lag effect among size-sorted equity portfolios," International Review of Economics & Finance, Elsevier, vol. 14(2), pages 181-201.
  9. Rasmus Kattai & John Lewis, 2005. "Hooverism, Hyperstabilisation or Halfway-House? Describing Fiscal Policy in Central and Eastern European EU Members," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 5(2), pages 38-47, July.
  10. Maja Kadievska-Vojnovic & Danica Unevska, 2007. "Price and Income Elasticities of Export and Import and Economic Growth in the case of the Republic of Macedonia," Working Papers 2007-01, National Bank of the Republic of Macedonia.
  11. Ammar Hamad Khalaf, 2011. "Impact of Financial Liberalization on Financial Depth in Iraq," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 3(2), pages 063-074, December.
  12. Bjørn E. Naug, 1999. "Modelling the Demand for Imports and Domestic Output," Discussion Papers 243, Research Department of Statistics Norway.

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