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Exact rational expectations, cointegration, and reduced rank regression

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Author Info
Søren Johansen
Anders Rygh Swensen () (School of Economics and Management, University of Aarhus, Denmark and CREATES)

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Abstract

We interpret the linear relations from exact rational expectations models as restrictions on the parameters of the statistical model called the cointegrated vector autoregressive model for non-stationary variables. We then show how reduced rank regression, Anderson (1951), plays an important role in the calculation of maximum likelihood estimation of the restricted parameters.

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Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2007-41.

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Length: 11
Date of creation: 04 Dec 2007
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Handle: RePEc:aah:create:2007-41

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Web page: http://www.econ.au.dk/afn/

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Related research
Keywords: Exact rational expectations; Cointegrated VAR model; Reduced rank regression;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

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  1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  2. Richard Baillie, 1989. "Econometric tests of rationality and market efficiency," Econometric Reviews, Taylor and Francis Journals, vol. 8(2), pages 151-186. [Downloadable!] (restricted)
  3. Johansen, Soren & Swensen, Anders Rygh, 1999. "Testing exact rational expectations in cointegrated vector autoregressive models," Journal of Econometrics, Elsevier, vol. 93(1), pages 73-91, November. [Downloadable!] (restricted)
  4. Lars Peter Hansen & Thomas J. Sargent, 1981. "Exact linear rational expectations models: specification and estimation," Staff Report 71, Federal Reserve Bank of Minneapolis. [Downloadable!]
  5. M. R. Wickens, 1989. "Econometric tests of rationality and market efficiency," Econometric Reviews, Taylor and Francis Journals, vol. 8(2), pages 207-212. [Downloadable!] (restricted)
  6. Søren Johansen & Anders Rygh Swensen, 2004. "More on testing exact rational expectations in cointegrated vector autoregressive models: Restricted constant and linear term," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 389-397, December. [Downloadable!] (restricted)
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This page was last updated on 2009-12-1.

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