Autoregressive conditional root model
AbstractIn this paper we develop a time series model which allows long-term disequilibriums to have epochs of non-stationarity, giving the impression that long term relationships between economic variables have temporarily broken down, before they endogenously collapse back towards their long term relationship. This autoregressive root model is shown to be ergodic and covariance stationary under some rather general conditions. We study how this model can be estimated and tested, developing appropriate asymptotic theory for this task. Finally we apply the model to assess the purchasing power parity relationship.
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Bibliographic InfoPaper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2002-W7.
Length: 30 pages
Date of creation: 01 Apr 2001
Date of revision: 01 Feb 2002
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Web page: http://www.nuff.ox.ac.uk/economics/
Cointegration; Equilibrium correction model; GARCH; Hidden Markov model; Likelihood; Regime switching; STAR model; Stochastic break; Stochastic unit root; Switching regression; Real Exchange Rate; PPP; Unit root hypothesis.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-04-03 (All new papers)
- NEP-ECM-2002-04-06 (Econometrics)
- NEP-ETS-2002-04-03 (Econometric Time Series)
- NEP-IFN-2002-04-03 (International Finance)
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