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Cointegration, long-run structural modelling and weak exogeneity: Two models of the UK economy

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  • Jacobs, Jan P.A.M.
  • Wallis, Kenneth F.

Abstract

Cointegration ideas as introduced by Granger in 1981 are commonly embodied in empirical macroeconomic modelling through the vector error correction model (VECM). It has become common practice in these models to treat some variables as weakly exogenous, resulting in conditional VECMs. This paper studies the consequences of different approaches to weak exogeneity for the dynamic properties of such models, in the context of two models of the UK economy, one a national-economy model, the other the UK submodel of a global model. Impulse response and common trend analyses are shown to be sensitive to these assumptions and other specification choices.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 158 (2010)
Issue (Month): 1 (September)
Pages: 108-116

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Handle: RePEc:eee:econom:v:158:y:2010:i:1:p:108-116

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

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Keywords: Cointegration Macroeconometric modelling Vector error correction model Impulse response analysis Weak exogeneity;

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References

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  1. Dees, S. & Holly, S. & Pesaran, M.H. & Smith, L.V., 2007. "Long Run Macroeconomic Relations in the Global Economy," Cambridge Working Papers in Economics 0703, Faculty of Economics, University of Cambridge.
  2. Stephane Dees & Filippo di Mauro & M. Hashem Pesaran & L. Vanessa Smith, 2006. "Exploring the International Linkages of the Euro Area: a Global VAR Analysis," Computing in Economics and Finance 2006 47, Society for Computational Economics.
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  7. Levtchenkova, S & Pagan, A R & Robertson, J C, 1998. " Shocking Stories," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 507-32, December.
  8. Fisher, Lance A. & Huh, Hyeon-seung, 2007. "Permanent-Transitory Decompositions Under Weak Exogeneity," Econometric Theory, Cambridge University Press, vol. 23(01), pages 183-189, February.
  9. Garratt, Anthony & Lee, Kevin & Pesaran, M. Hashem & Shin, Yongcheol, 2006. "Global and National Macroeconometric Modelling: A Long-Run Structural Approach," OUP Catalogue, Oxford University Press, number 9780199296859.
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  12. Paruolo, Paolo, 1997. "Asymptotic Inference on the Moving Average Impact Matrix in Cointegrated 1(1) VAR Systems," Econometric Theory, Cambridge University Press, vol. 13(01), pages 79-118, February.
  13. Garratt, A. & Lee, K. & Pesaran, M. H. & Shin, Y., 1998. "A Long-run Structural Macro-econometric Model of the UK," Cambridge Working Papers in Economics 9812, Faculty of Economics, University of Cambridge.
  14. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  15. Kenneth F. Wallis & Jan P. A. M. Jacobs, 2005. "Comparing SVARs and SEMs: two models of the UK economy," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 209-228.
  16. Doornik, Jurgen A & Hendry, David F & Nielsen, Bent, 1998. " Inference in Cointegrating Models: UK M1 Revisited," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 533-72, December.
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Cited by:
  1. Adam Elbourne & Henk Kranendonk & Rob Luginbuhl & Bert Smid & Martin Vromans, 2008. "Evaluating CPB's published GDP growth forecasts; a comparison with individual and pooled VAR based forecasts," CPB Document 172, CPB Netherlands Bureau for Economic Policy Analysis.
  2. Mardi Dungey & Denise R Osborn, 2009. "Modelling International Linkages for Large Open Economies: US and Euro Area," Centre for Growth and Business Cycle Research Discussion Paper Series 121, Economics, The Univeristy of Manchester.
  3. Dungey, Mardi & Fry, Renée, 2009. "The identification of fiscal and monetary policy in a structural VAR," Economic Modelling, Elsevier, vol. 26(6), pages 1147-1160, November.

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