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Cointegration implications of linear rational expectation models

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  • Juselius, Mikael

    ()
    (Hanken School of Economics)

Abstract

This paper derives the cointegration spaces that are implied by linear rational expectations models when data are I(1). The cointegration implications are easy to calculate and can be readily applied to test if the models are consistent with the long-run properties of the data. However, the restrictions on cointegration only form a subset of all the cross-equation restrictions that the models place on data. The approach is particularly useful in separating potentially data-consistent models from the remaining models within a large model family. Moreover, the approach provides useful information on the empirical shock structure of the data.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0806netti.pdf
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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 6/2008.

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Length: 25 pages
Date of creation: 11 Mar 2008
Date of revision:
Handle: RePEc:hhs:bofrdp:2008_006

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Keywords: rational expectations; cointegration;

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References

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  1. Peter N. Ireland, 2004. "Technology Shocks in the New Keynesian Model," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 923-936, November.
  2. Lars Peter Hansen & Thomas J. Sargent, 1981. "Exact linear rational expectations models: specification and estimation," Staff Report 71, Federal Reserve Bank of Minneapolis.
  3. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  4. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
  5. Lars Peter Hansen & Thomas J. Sargent, 1979. "Formulating and estimating dynamic linear rational expectations models," Working Papers 127, Federal Reserve Bank of Minneapolis.
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  8. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
  9. Geert Bekaert & Seonghoon Cho & Antonio Moreno, 2005. "New-Keynesian Macroeconomics and the Term Structure," NBER Working Papers 11340, National Bureau of Economic Research, Inc.
  10. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
  11. 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.
  12. John Y. Campbell & Robert J. Shiller, 1986. "Cointegration and Tests of Present Value Models," Cowles Foundation Discussion Papers 785, Cowles Foundation for Research in Economics, Yale University.
  13. Jordi Galí & Mark Gertler, 1998. "Inflation dynamics: A structural econometric analysis," Economics Working Papers 341, Department of Economics and Business, Universitat Pompeu Fabra.
  14. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, Octomber.
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Cited by:
  1. Majid M. Al-Sadoon, 2013. "Geometric and long run aspects of Granger causality," Economics Working Papers 1356, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Juselius, Mikael, 2008. "Testing the New Keynesian Model on U.S. and Euro Area Data," Economics Discussion Papers 2008-23, Kiel Institute for the World Economy.

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