On Priors on Cointegrating Spaces

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On Priors on Cointegrating Spaces

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Rodney W. Strachan () (Keele University, Department of Economics)

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Rodney W. Strachan

Abstract

The focus of inference in Bayesian cointegration analysis has recently shifted from the cointegrating vectors to the cointegrating space. Two recent papers - Strachan and Inder (2004) and Villani (2004) - present uniform priors for the cointegrating space using different specifications for identification of the cointegrating vectors. This note clarifies the links between these approaches and shows that while the implied priors on the cointegrating space are identical, the posteriors have very different forms and this difference has implications for the inferences that can be obtained and for computational ease. Central to explaining these results is the specification of the adjustment coefficients under different identifying restrictions. The discussion extends to results on the priors in Geweke (1996) and Kleibergen and Paap (2002) and the interpretation of cointegrating vectors with linear identifying restrictions.

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Paper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2004/06.

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Length: 24 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:kee:kerpuk:2004/06

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Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-05-13 (All new papers)
NEP-ECM-2006-05-13 (Econometrics)
NEP-ETS-2006-05-13 (Econometric Time Series)

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