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Estimating Intertemporal Quadratic Adjustment Cost Models with Integrated Series

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  • Dolado, Juan
  • Galbraith, John W
  • Banerjee, Anindya

Abstract

The authors consider the estimation of parameters in Euler equations where regressand and regressors may be nonstationary, and propose a several-stage procedure requiring only knowledge of the Euler equation and the order of integration of the data. This procedure uses the information gained from pretesting for the order of integration of data series to improve specification and estimation. The authors can also offer an explanation of the frequent empirical finding that discount rates and adjustment costs are poorly estimated. Both analytical and experimental (Monte Carlo) results are provided. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 32 (1991)
Issue (Month): 4 (November)
Pages: 919-36

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Handle: RePEc:ier:iecrev:v:32:y:1991:i:4:p:919-36

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Cited by:
  1. Jaebeom Kim & Masao Ogaki & Minseok Yang, 2003. "Structural Error Correction Models: Instrumental Variables Methods and an application to an exchange rate model," RCER Working Papers 502, University of Rochester - Center for Economic Research (RCER).
  2. Pål Boug & Ådne Cappelen & Anders R. Swensen, 2000. "Expectations in Export Price Formation Tests using Cointegrated VAR Models," Discussion Papers 283, Research Department of Statistics Norway.
  3. Robert A. Amano, . "Empirical Evidence on the Cost of Adjustment and Dynamic Labour Demand," Working Papers 95-3, Bank of Canada.
  4. Engsted, Tom, 2002. " Measures of Fit for Rational Expectations Models," Journal of Economic Surveys, Wiley Blackwell, vol. 16(3), pages 301-55, July.
  5. Paul Mizen & Anindya Banerjee, 2006. "A re-interpretation of the linear quadratic model when inventories and sales are polynomially cointegrated," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(8), pages 1249-1264.
  6. Croix,David,de la & Palm,Franz & Urbain,Jean-Pierre, 1996. "Labor market dynamics when effort depends on wage growth comparisons," Research Memorandum 016, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  7. Robert A. Amano & Tony S. Wirjanto, 1994. "The Dynamic Behaviour of Canadian Imports and the Linear-Quadratic Model: Evidence Based on the Euler Equation," Econometrics 9406002, EconWPA.
  8. Engsted, Tom & Haldrup, Niels, 1997. "Money demand, adjustment costs, and forward-looking behavior," Journal of Policy Modeling, Elsevier, vol. 19(2), pages 153-173, April.
  9. Willman, Alpo, 2003. "Consumption, habit persistence, imperfect information and the lifetime budget constraint," Working Paper Series 0251, European Central Bank.
  10. Robert A. Amano & Tony S. Wirjanto, 1994. "A Further Analysis of Exchange Rate Targeting in Canada," Econometrics 9406001, EconWPA, revised 22 Jun 1994.
  11. Gregory, Allan W. & Nason, James M. & Watt, David G., 1996. "Testing for structural breaks in cointegrated relationships," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 321-341.
  12. Amano, Robert A. & Wirjanto, Tony S., 1997. "Adjustment costs and import demand behavior: evidence from Canada and the United States," Journal of International Money and Finance, Elsevier, vol. 16(3), pages 461-476, June.

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