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Codependence in cointegrated autoregressive models

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  • Christoph Schleicher

    (Bank of England, London, UK; University of British Columbia, Vancouver, Canada)

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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Bibliographic 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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  1. 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..
  2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  3. Robert F. Engle & Sharon Kozicki, 1990. "Testing For Common Features," NBER Technical Working Papers 0091, National Bureau of Economic Research, Inc.
  4. 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.
  5. Christoph Schleicher & Francisco Barillas, 2005. "Common Trends and Common Cycles in Canadian Sectoral Output," Computing in Economics and Finance 2005 214, Society for Computational Economics.
  6. Cubadda, Gianluca & Hecq, Alain, 2001. "On non-contemporaneous short-run co-movements," Economics Letters, Elsevier, vol. 73(3), pages 389-397, December.
  7. Hecq, Alain & Palm, Franz C. & Urbain, Jean-Pierre, 2000. "Permanent-transitory decompositions in VAR models with cointegration and common cycles," Open Access publications from Maastricht University urn:nbn:nl:ui:27-5777, Maastricht University.
  8. 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.
  9. 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.
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Cited by:
  1. Cubadda, Gianluca & Hecq, Alain & Palm, Franz C., 2009. "Studying co-movements in large multivariate data prior to multivariate modelling," Open Access publications from Maastricht University urn:nbn:nl:ui:27-22876, Maastricht University.
  2. Trenkler, Carsten & Weber, Enzo, 2012. "Identifying the Shocks behind Business Cycle Asynchrony in Euroland," University of Regensburg Working Papers in Business, Economics and Management Information Systems 466, University of Regensburg, Department of Economics.
  3. Marco Centoni & Gianluca Cubadda, 2011. "Modelling Comovements of Economic Time Series: A Selective Survey," CEIS Research Paper 215, Tor Vergata University, CEIS, revised 26 Oct 2011.
  4. Nannette Lindenberg & Frank Westermann, 2009. "Common Trends and Common Cycles among Interest Rates of the G7-Countries," Working Papers 77, Institute of Empirical Economic Research.
  5. Franchi, Massimo & Paruolo, Paolo, 2011. "A characterization of vector autoregressive processes with common cyclical features," Journal of Econometrics, Elsevier, vol. 163(1), pages 105-117, July.
  6. Trenkler, Carsten & Weber, Enzo, 2012. "Codependent VAR Models and the Pseudo-Structural Form," University of Regensburg Working Papers in Business, Economics and Management Information Systems 465, University of Regensburg, Department of Economics.
  7. Chen, Xiaoshan & Mills, Terence C., 2009. "Evaluating growth cycle synchronisation in the EU," Economic Modelling, Elsevier, vol. 26(2), pages 342-351, March.

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