Cointegrating VAR models with endogenous I(0) variables: theoretical extensions and an application to UK monetary policy
AbstractThis paper generalises the manner in which I(0) variables enter cointegrating VAR models. Rather than assuming the I(0) variables are strictly exogenous the I(0) variables are allowed to depend on linear combinations of the cointegrating vectors. As well as representing a more general statistical representation of a set of variables in a cointegrating VAR model, the approach facilitates structural interpretation of the equations governing the determination of the I(0) variables. In contrast to traditional structural VAR models identification of the short run relations, or equivalently the structural shocks, corresponding to the I(0) variables is achieved without the imposition of a priori restrictions on the contemporaneous relations between the I(1) variables and/or the variance- covariance matrix of the structural shocks. Our approach is illustrated with an application to UK monetary policy.
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Bibliographic InfoPaper provided by National Institute of Economic and Social Research in its series NIESR Discussion Papers with number 169.
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- Luis Fernando Escobar Patiño & Pablo Hernán Mendieta Ossio, 2006.
"Inflación y depreciación en una economía dolarizada: el caso de Bolivia,"
Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 1-39, enero-mar.
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