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Permanent‐transitory Decomposition in Var Models With Cointegration and Common Cycles

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  • Alain Hecq
  • Franz C. Palm
  • Jean‐Pierre Urbain

Abstract

In this paper we derive permanent‐transitory decompositions of non‐stationary multiple times series generated by (r)nite order Gaussian VAR(p) models with both cointegration and serial correlation common features. We extend existing analyses to the two classes of reduced rank structures discussed in Hecq, Palm and Urbain (1998). Using the corresponding state space representation of cointegrated VAR models in vector error correction form we show how decomposition can be obtained even in the case where the number of common feature and cointegration vectors are not equal to the number of variables. As empirical analysis of US business fluctuations shows the practical relevance of the approach we propose.

Suggested Citation

  • Alain Hecq & Franz C. Palm & Jean‐Pierre Urbain, 2000. "Permanent‐transitory Decomposition in Var Models With Cointegration and Common Cycles," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(4), pages 511-532, September.
    • Handle: RePEc:bla:obuest:v:62:y:2000:i:4:p:511-532
    DOI: 10.1111/1468-0084.00185
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