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Vector rational error correction

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  • Kozicki, Sharon
  • Tinsley, P. A.

Abstract

Systems of forward-looking linear decision rules can be formulated as vector "rational" error correction models. The closed-form solution of the restricted error corrections is derived, and a full-information estimator is suggested. The error correction format indicates that the assumptions of convex adjustment costs and rational expectations impose different types of a priori restrictions on the dynamic structure of the error corrections. An empirical model of the producer decision rule for capital investment illustrates that the data rejects dynamic restrictions imposed by a standard model of adjustment costs but supports a more general description of convex frictions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 23 (1999)
Issue (Month): 9-10 (September)
Pages: 1299-1327

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Handle: RePEc:eee:dyncon:v:23:y:1999:i:9-10:p:1299-1327

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Web page: http://www.elsevier.com/locate/jedc

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Citations

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Cited by:
  1. Jeffrey C. Fuhrer & Giovanni P. Olivei, 2004. "Estimating forward looking Euler equations with GMM estimators: an optimal instruments approach," Working Papers 04-2, Federal Reserve Bank of Boston.
  2. Martin Meurers, 2004. "Estimating Supply and Demand Functions in International Trade: A Multivariate Cointegration Analysis for Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 224(5), pages 530-556, September.
  3. Rochelle M. Edge & Thomas Laubach & John C. Williams, 2003. "The responses of wages and prices to technology shocks," Finance and Economics Discussion Series 2003-65, Board of Governors of the Federal Reserve System (U.S.).
  4. Kozicki, Sharon, 2012. "Macro has progressed," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 23-28.
  5. Fanelli, Luca, 2008. "Evaluating the New Keynesian Phillips Curve under VAR-Based Learning," Economics Discussion Papers 2008-15, Kiel Institute for the World Economy.
  6. Òscar Jordà & Sharon Kozicki, 2007. "Estimation and Inference by the Method of Projection Minimum Distance," Working Papers 07-56, Bank of Canada.
  7. Peter Tinsley & Sharon Kozicki, 2003. "Alternative Sources of the Lag Dynamics of Inflation," Computing in Economics and Finance 2003 92, Society for Computational Economics.
  8. 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.
  9. Fanelli, Luca, 2008. "Evaluating New Keynesian Phillips Curve under VAR-Based Learning," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(33), pages 1-24.
  10. Peter N. Ireland, 1999. "Sticky-Price Models of the Business Cycle: Specification and Stability," Boston College Working Papers in Economics 426, Boston College Department of Economics.
  11. Peter von zur Muehlen, 2001. "The effect of past and future economic fundamentals on spending and pricing behavior in the FRB/US macroeconomic model," Finance and Economics Discussion Series 2001-12, Board of Governors of the Federal Reserve System (U.S.).
  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.
  13. Kozicki, Sharon & Tinsley, P. A., 2002. "Dynamic specifications in optimizing trend-deviation macro models," Journal of Economic Dynamics and Control, Elsevier, vol. 26(9-10), pages 1585-1611, August.
  14. Luca Fanelli, 2009. "Estimation of quasi-rational DSGE monetary models," Quaderni di Dipartimento 3, Department of Statistics, University of Bologna.
  15. Marc-André Gosselin & René Lalonde, 2004. "Modélisation « PAC » du secteur extérieur de l'économie américaine," Working Papers 04-3, Bank of Canada.
  16. Kiley, Michael T., 2001. "Computers and growth with frictions: aggregate and disaggregate evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 55(1), pages 171-215, December.
  17. Marc-André Gosselin & René Lalonde, 2003. "Un modèle « PAC » d'analyse et de prévision des dépense des ménages américains," Working Papers 03-13, Bank of Canada.

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