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Bayesian Analysis Of A Fractional Cointegration Model

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  • Gael Martin

Abstract

The concept of fractional cointegration, whereby deviations from an equilibrium relationship follow a fractionally integrated process, has attracted some attention of late. The extended concept allows cointegration to be associated with mean reversion in the error, rather than requiring the more stringent condition of stationarity. This paper presents a Bayesian method for conducting inference about fractional cointegration. The method is based on an approximation of the exact likelihood, with a Jeffreys prior being used to offset identification problems. Numerical results are produced via a combination of Markov chain Monte Carlo algorithms. The procedure is applied to several purchasing power parity relations, with substantial evidence found in favor of parity reversion.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Econometric Reviews.

Volume (Year): 20 (2001)
Issue (Month): 2 ()
Pages: 217-234

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Handle: RePEc:taf:emetrv:v:20:y:2001:i:2:p:217-234

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Related research

Keywords: Fractional cointegration; Bayesian inference; Jeffreys prior; Markov chain Monte Carlo; JEL Classification: C11; C32;

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References

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Citations

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Cited by:
  1. C.S. Forbes & G.M. Martin & J. Wright, 2002. "Bayesian Estimation of a Stochastic Volatility Model Using Option and Spot Prices," Monash Econometrics and Business Statistics Working Papers 2/02, Monash University, Department of Econometrics and Business Statistics.
  2. Koop, G. & Strachan, R.W. & van Dijk, H.K. & Villani, M., 2005. "Bayesian approaches to cointegratrion," Econometric Institute Research Papers EI 2005-13, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  3. Cunado, J. & Gil-Alana, L. A. & Perez de Gracia, F., 2004. "Is the US fiscal deficit sustainable?: A fractionally integrated approach," Journal of Economics and Business, Elsevier, vol. 56(6), pages 501-526.
  4. repec:ebl:ecbull:v:3:y:2004:i:47:p:1-8 is not listed on IDEAS
  5. Luis A. Gil-Alana, 2004. "Fractional cointegration in the consumption and income relationship using semiparametric techniques," Economics Bulletin, AccessEcon, vol. 3(47), pages 1-8.

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