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Codependence in cointegrated autoregressive models

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Author Info
Christoph Schleicher (Bank of England, London, UK; University of British Columbia, Vancouver, Canada)

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Abstract

This paper investigates codependent cycles, i.e., transitory components that react to common stimuli in a similar, although not necessarily synchronous fashion. Unlike previous studies, the methodology of this paper allows FIML estimation of the restricted VAR|VECM and therefore the extraction of the unobserved codependent cyclical components via a Beveridge-Nelson decomposition. It is further shown that the number and order of cofeature combinations that yield the scalar component models associated with codependence is limited by the dimension of a finite-order VAR system. Monte Carlo simulations indicate that LR tests based on FIML estimates have higher power than alternative GMM and canonical correlations tests, while maintaining good size properties. An empirical application investigates the presence of codependence in UK consumption data. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.930
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File URL: http://qed.econ.queensu.ca:80/jae/2007-v22.1/
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 22 (2007)
Issue (Month): 1 ()
Pages: 137-159
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Handle: RePEc:jae:japmet:v:22:y:2007:i:1:p:137-159

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(4), pages 369-80, October.
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  2. Vahid, F & Engle, Robert F, 1993. "Common Trends and Common Cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(4), pages 341-60, Oct.-Dec.. [Downloadable!] (restricted)
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  3. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July. [Downloadable!] (restricted)
  4. Francisco Barillas & Christoph Schleicher, 2003. "Common Trends and Common Cycles in Canadian Sectoral Output," Working Papers 03-44, Bank of Canada. [Downloadable!]
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  5. Proietti, Tommaso, 1997. "Short-Run Dynamics in Cointegrated Systems," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(3), pages 405-22, August.
  6. Stock, James H & Watson, Mark W, 1988. "Variable Trends in Economic Time Series," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 147-74, Summer. [Downloadable!] (restricted)
  7. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(4), pages 393-95, October.
  8. Hecq, Alain & Palm, Franz C & Urbain, Jean-Pierre, 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 511-32, September. [Downloadable!] (restricted)
  9. Cubadda, Gianluca & Hecq, Alain, 2001. "On non-contemporaneous short-run co-movements," Economics Letters, Elsevier, vol. 73(3), pages 389-397, December. [Downloadable!] (restricted)
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