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Present Value Relations, Granger Noncausality, And Var Stability

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Author Info
Fanelli, Luca

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Abstract

When in the class of exact present value (PV) relations the decision variables do not Granger cause the explanatory variables, and a vector autoregressive (VAR) process is used to derive the cross-equation restrictions, the system embodies explosive roots, which hardly can be reconciled with the typical features observed in most macroeconomic time series. This paper investigates the issue.I thank Paolo Paruolo and two anonymous referees for helpful comments and suggestions on earlier drafts of the paper. I am solely responsible for all remaining errors.

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Publisher Info
Article provided by Cambridge University Press in its journal Econometric Theory.

Volume (Year): 23 (2007)
Issue (Month): 06 (December)
Pages: 1254-1260
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:cup:etheor:v:23:y:2007:i:06:p:1254-1260_07

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  1. Timmermann, Allan, 1994. "Present value models with feedback : Solutions, stability, bubbles, and some empirical evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1093-1119, November. [Downloadable!] (restricted)
  2. Luca Fanelli, 2006. "Dynamic adjustment cost models with forward-looking behaviour," Econometrics Journal, Royal Economic Society, vol. 9(1), pages 23-47, 03. [Downloadable!] (restricted)
  3. Diba, Behzad T & Grossman, Herschel I, 1988. "Explosive Rational Bubbles in Stock Prices?," American Economic Review, American Economic Association, vol. 78(3), pages 520-30, June.
  4. Sargent, Thomas J., 1979. "A note on maximum likelihood estimation of the rational expectations model of the term structure," Journal of Monetary Economics, Elsevier, vol. 5(1), pages 133-143, January. [Downloadable!] (restricted)
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  5. Johansen, Soren & Swensen, Anders Rygh, 1999. "Testing exact rational expectations in cointegrated vector autoregressive models," Journal of Econometrics, Elsevier, vol. 93(1), pages 73-91, November. [Downloadable!] (restricted)
  6. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October. [Downloadable!] (restricted)
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  7. Geert Bekaert, 2001. "Expectations Hypotheses Tests," Journal of Finance, American Finance Association, vol. 56(4), pages 1357-1394, 08. [Downloadable!] (restricted)
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  8. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-88, October. [Downloadable!] (restricted)
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  9. Fanelli, Luca, 2006. "Multi-equational linear quadratic adjustment cost models with rational expectations and cointegration," Journal of Economic Dynamics and Control, Elsevier, vol. 30(3), pages 445-456, March. [Downloadable!] (restricted)
  10. Engsted, Tom & Haldrup, Niels, 1994. "The Linear Quadratic Adjustment Cost Model and the Demand for Labour," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(S), pages S145-59, Suppl. De. [Downloadable!] (restricted)
  11. Richard Meese, 1980. "Dynamic factor demand schedules for labor and capital under rational expectations," International Finance Discussion Papers 153, Board of Governors of the Federal Reserve System (U.S.).
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  12. Fanelli, Luca, 2002. "A new approach for estimating and testing the linear quadratic adjustment cost model under rational expectations and I(1) variables," Journal of Economic Dynamics and Control, Elsevier, vol. 26(1), pages 117-139, January. [Downloadable!] (restricted)
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