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Structural Error Correction Models: Instrumental Variables Methods and an application to an exchange rate model

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  • Jaebeom Kim

    (University of St. Thomas)

  • Masao Ogaki

    (The Ohio State University.)

  • Minseok Yang

    (Seoul Cyber University)

Abstract

Error correction models are widely used to estimate dynamic cointegrated systems. In most applications error correction models are reduced form models. As a result, non-structural speed of adjustment coefficients are estimated in these applications. A single equation instrumental variable method can be used to estimate a structural speed of adjustment coefficient. This paper develops a system instrumental variable method to estimate the structural speed of adjustment coefficient in an error correction model. This method utilizes Hansen and Sargent's (1982) instrumental variable estimator for linear rational expectations models, and is applied to an exchange rate model with sticky prices.

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Bibliographic Info

Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 502.

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Length: 24 pages
Date of creation: Oct 2003
Date of revision:
Handle: RePEc:roc:rocher:502

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Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

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Citations

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Cited by:
  1. Masao Ogaki & Jaebeom Kim, 2004. "Purchasing Power Parity for Traded and Non-traded Goods: A Structural Error Correction Model Approach," Econometric Society 2004 Far Eastern Meetings, Econometric Society 515, Econometric Society.
  2. Kevin X.D. Huang & Thaneepanichskul Suchada, 2003. "Sources of Exchange Rate Fluctuations: The Cases of Mexico and Thailand in the Aftermaths of their Recent Currency Crises," Annals of Economics and Finance, Society for AEF, vol. 4(2), pages 375-400, November.
  3. Astorga, Pablo, 2012. "Mean reversion in long-horizon real exchange rates: Evidence from Latin America," Journal of International Money and Finance, Elsevier, Elsevier, vol. 31(6), pages 1529-1550.

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