Exact rational expectations, cointegration, and reduced rank regression
AbstractWe 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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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2007-41.
Date of creation: 04 Dec 2007
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Exact rational expectations; Cointegrated VAR model; Reduced rank regression;
Other versions of this item:
- Soren Johansen & Anders Rygh Swensen, 2007. "Exact Rational Expectations, Cointegration, and Reduced Rank Regression," Discussion Papers 07-29, University of Copenhagen. Department of Economics.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-06-27 (All new papers)
- NEP-CBA-2008-06-27 (Central Banking)
- NEP-ETS-2008-06-27 (Econometric Time Series)
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- 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.
- 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.
- 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.
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