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A VECX Model of the Swiss Economy

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  • Katrin Assenmacher-Wesche
  • M. Hashem Pesaran

Abstract

This paper applies the modelling strategy of Garratt, Lee, Pesaran and Shin (2003) to the estimation of a structural cointegrated VAR model that relates the core macroeconomic variables of the Swiss economy to current and lagged values of a number of key foreign variables. We identify and test a long-run structure between the variables. Moreover, we analyse the dynamic properties of the model using Generalised Impulse Response Functions. In its current form the model can be used to produce forecasts for the endogenous variables either under alternative specifications of the marginal model for the exogenous variables, or conditional on some pre-specified path of those variables (for scenario forecasting). In due course the Swiss VECX model can also be integrated within a Global VAR (GVAR) model where the foreign variables of the model are determined endogenously.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2008/wp-cesifo-2008-04/cesifo1_wp2281.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2281.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2281

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Keywords: long-run structural vector autoregression;

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References

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  1. Stephane Dees & Filippo di Mauro & M. Hashem Pesaran & L. Vanessa Smith, 2005. "Exploring the International Linkages of the Euro Area: a Global VAR Analysis," CESifo Working Paper Series 1425, CESifo Group Munich.
  2. Pesaran, M.H. & Shin, Y., 1993. "Cointegration and Speed of Convergence to Equilibrium," Cambridge Working Papers in Economics 9311, Faculty of Economics, University of Cambridge.
  3. Katrin Assenmacher-Wesche & M. Hashem Pesaran, 2008. "Forecasting the Swiss Economy Using Vecx* Models: an Exercise in Forecast Combination Across Models and Observation Windows," National Institute Economic Review, National Institute of Economic and Social Research, National Institute of Economic and Social Research, vol. 203(1), pages 91-108, January.
  4. A Garratt & K Lee & M Pesaran & Yongcheol Shin, 2004. "A long run structural macroeconometric model of the UK," ESE Discussion Papers, Edinburgh School of Economics, University of Edinburgh 35, Edinburgh School of Economics, University of Edinburgh.
  5. M. Hashem Pesaran & Til Schuermann & Scott M. Weiner, 2002. "Modeling Regional Interdependencies Using a Global Error-Correcting Macroeconometric Model," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 01-38, Wharton School Center for Financial Institutions, University of Pennsylvania.
  6. Pesaran, M. H. & Shin, Y. & Smith, R. J., 1997. "Structural Analysis of Vector Error Correction Models with Exogenous I(1) Variables," Cambridge Working Papers in Economics 9706, Faculty of Economics, University of Cambridge.
  7. Lee, Kevin C. & Pesaran, M. Hashem, 1993. "Persistence profiles and business cycle fluctuations in a disaggregated model of U.K. output growth," Ricerche Economiche, Elsevier, Elsevier, vol. 47(3), pages 293-322, September.
  8. Garratt, Anthony & Lee, Kevin & Pesaran, M. Hashem & Shin, Yongcheol, 2006. "Global and National Macroeconometric Modelling: A Long-Run Structural Approach," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199296859, October.
  9. M. Hashem Pesaran & Ron Smith, 2006. "Macroeconometric Modelling with a Global Perspective," IEPR Working Papers, Institute of Economic Policy Research (IEPR) 06.43, Institute of Economic Policy Research (IEPR).
  10. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, Elsevier, vol. 58(1), pages 17-29, January.
  11. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, Elsevier, vol. 74(1), pages 119-147, September.
  12. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 64(4), pages 813-36, July.
  13. Adrian R. Pagan & M. Hashem Pesaran, 2008. "Econometric Analysis of Structural Systems with Permanent and Transitory Shocks," Discussion Papers, School of Economics, The University of New South Wales 2008-04, School of Economics, The University of New South Wales.
  14. Kongsted, Hans Christian, 2005. "Testing the nominal-to-real transformation," Journal of Econometrics, Elsevier, Elsevier, vol. 124(2), pages 205-225, February.
  15. Strøm,Steinar (ed.), 1999. "Econometrics and Economic Theory in the 20th Century," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521633239.
  16. Kilian, Lutz, 2001. "Impulse Response Analysis in Vector Autoregressions with Unknown Lag Order," Journal of Forecasting, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 20(3), pages 161-79, April.
  17. Ho, Mun S & Sorensen, Bent E, 1996. "Finding Cointegration Rank in High Dimensional Systems Using the Johansen Test: An Illustration Using Data Based Monte Carlo Simulations," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 726-32, November.
  18. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  19. Henrik Hansen & Søren Johansen, 1999. "Some tests for parameter constancy in cointegrated VAR-models," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 2(2), pages 306-333.
  20. Strøm,Steinar (ed.), 1999. "Econometrics and Economic Theory in the 20th Century," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521633659.
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Citations

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Cited by:
  1. Esfahani, Hadi Salehi & Mohaddes, Kamiar & Pesaran, M. Hashem, 2009. "Oil Exports and the Iranian Economy," IZA Discussion Papers 4537, Institute for the Study of Labor (IZA).
  2. Assenmacher-Wesche, Katrin & Pesaran, M. Hashem, 2007. "Assessing Forecast Uncertainties in a VECX Model for Switzerland: An Exercise in Forecast Combination across Models and Observation Windows," IZA Discussion Papers 3071, Institute for the Study of Labor (IZA).
  3. Katrin Assenmacher-Wesche & M. Hashem Pesaran, 2008. "Forecasting the Swiss Economy Using Vecx* Models: an Exercise in Forecast Combination Across Models and Observation Windows," National Institute Economic Review, National Institute of Economic and Social Research, National Institute of Economic and Social Research, vol. 203(1), pages 91-108, January.
  4. Petra Gerlach-Kristen, 2007. "A Two-Pillar Phillips Curve for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), Swiss Society of Economics and Statistics (SSES), vol. 143(IV), pages 425-448, December.
  5. Chan, Tze-Haw, 2012. "Assessing the international parity conditions and transmission mechanism for Malaysia-China," MPRA Paper 38930, University Library of Munich, Germany.
  6. Chan, Tze-Haw, 2011. "A structural modeling of exchange rate, prices and interest rates between Malaysia-China in the liberalization era," MPRA Paper 32955, University Library of Munich, Germany.

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