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Permanent and transitory shocks in the presence of asymmetric error correction

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  • F. Chan
  • G. MacDonald

Abstract

This article highlights the potential importance of asymmetries in the loading vector of a set of cointegrated variables for the construction, analysis and interpretation of permanent and transitory shocks using impulse response functions. We derive an asymmetric version of the Permanent-Transitory decomposition suggested by Gonzalo and Ng (2001) and illustrate the potential importance of such asymmetries using the 'cay' data of Lettau and Ludvigson (2004).

Suggested Citation

  • F. Chan & G. MacDonald, 2015. "Permanent and transitory shocks in the presence of asymmetric error correction," Applied Economics, Taylor & Francis Journals, vol. 47(25), pages 2642-2648, May.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:25:p:2642-2648
    DOI: 10.1080/00036846.2015.1008765
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