This paper derives a method for estimating and testing the Linear Quadratic Adjustement Cost(LQAC) model when the target variable and some of the forcing variables follow I(2) processes. Based on a forward- looking error-correction formulation of the model it is shown how to obtain strongly consistent estimates of the structural long-run parameters and the adjustement cost parameter from both a linear and a non-linear cointegrating regression,where first- differences of the I(2) variables are included as regressors (multicointegration).
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Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number
1996-1.
Find related papers by JEL classification: C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - General C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
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