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A Bayesian Analysis of Exogeneity in Models with Latent Variables

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  • Anna Pajor

    ()
    (Cracow University of Economics)

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    Abstract

    This paper presents some new results on exogeneity in models with latent variables. The concept of exogeneity is extended to the class of models with latent variables, in which a subset of parameters and latent variables is of interest. Exogeneity is discussed from the Bayesian point of view. We propose sufficient weak and strong exogeneity conditions in the vector error correction model (VECM) with stochastic volatility (SV) disturbances. Finally, an empirical illustration based on the VECM-SV model for the daily growth rates of two main official Polish exchange rates: USD/PLN and EUR/PLN, as well as EUR/USD from the international Forex market is presented. The exogeneity of the EUR/USD rate is examined. The strong exogeneity hypothesis of the EUR/USD rate is not rejected by the data.

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    File URL: http://cejeme.eu/publishedarticles/2012-25-24-634682067023593750-8171.pdf
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    Bibliographic Info

    Article provided by CEJEME in its journal Central European Journal of Economic Modelling and Econometrics.

    Volume (Year): 3 (2011)
    Issue (Month): 2 (June)
    Pages: 49-73

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    Handle: RePEc:psc:journl:v:3:y:2011:i:2:p:49-73

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    Web page: http://cejeme.org/

    Related research

    Keywords: exogeneity; Bayesian cuts; latent variables; non-causality; stochastic volatility;

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    References

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    1. Hendry, David F. & Richard, Jean-Francois, 1982. "On the formulation of empirical models in dynamic econometrics," Journal of Econometrics, Elsevier, vol. 20(1), pages 3-33, October.
    2. Christophe Rault, 2011. "Long-run strong-exogeneity," Economics Bulletin, AccessEcon, vol. 31(1), pages 1-8.
    3. Osiewalski, J. & Steel, M.F.J., 1989. "A Bayesian Analysis Of Exogeneity In Models Pooling Time- Series And Cross -Section Data," Papers 8914, Tilburg - Center for Economic Research.
    4. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
    5. Ericsson, Neil R & Hendry, David F & Mizon, Grayham E, 1998. "Exogeneity, Cointegration, and Economic Policy Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 370-87, October.
    6. de Luna, Xavier & Johansson, Per, 2006. "Exogeneity in structural equation models," Journal of Econometrics, Elsevier, vol. 132(2), pages 527-543, June.
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    Cited by:
    1. Tomasz Wozniak, 2012. "Testing Causality Between Two Vectors in Multivariate GARCH Models," Economics Working Papers ECO2012/20, European University Institute.
    2. Tomasz Wozniak, 2012. "Granger-causal analysis of VARMA-GARCH models," Economics Working Papers ECO2012/19, European University Institute.
    3. Krzysztof Osiewalski & Jacek Osiewalski, 2013. "A Long-Run Relationship between Daily Prices on Two Markets: The Bayesian VAR(2)–MSF-SBEKK Model," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 5(1), pages 65-83, March.

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