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Common Trends and Common Cycles in Latin America: A 2-step vs an Iterative Approach

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Author Info
Alain W. HECQ

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Abstract

We are interested in determining the number of common trends and common cycles in the output of a set of Latin American countries. In order to work with homogeneous and reasonably good series however, we should rely on annual data. Consequently, the number of variables is relatively large compared to the number of observations to blindly trust the asymptotics. For several years, the panel data literature proposes tools to tackle this problem, mainly for the study of long-run co-movements. We take another road here and we test for cointegration and common cyclical features in a time series framework using an iterative strategy that maximizes the likelihood function by successively imposing long and short-run restrictions until convergence is achieved. Monte Carlo simulations stress advantages of this approach over the two-step one. In practice however, the cost of implementing this more complicated procedure must be evaluated with the expected benefits. Overall, simple adjustments for the degrees of freedom and the use of information criteria are helpful "cheap" alternatives

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 258.

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Date of creation: 11 Nov 2005
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Handle: RePEc:sce:scecf5:258

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Related research
Keywords: Common trends; Common Cycles; Monte Carlo;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  3. Michel Beine & Alain Hecq, 1999. "Inference in Codependence : Some Monte Carlo Results and Applications," Annales d'Economie et de Statistique, ADRES, issue 54, pages 04, Avril-Jui. [Downloadable!]
  4. Issler, Joao Victor & Vahid, Farshid, 2001. "Common cycles and the importance of transitory shocks to macroeconomic aggregates," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 449-475, June. [Downloadable!] (restricted)
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  8. Soderlind, Paul & Vredin, Anders, 1996. "Applied Cointegration Analysis in the Mirror of Macroeconomic Theory," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(4), pages 363-81, July-Aug.. [Downloadable!] (restricted)
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  14. Jacobson, Tor & Vredin, Anders & Warne, Anders, 1998. "Are Real Wages and Unemployment Related?," Economica, London School of Economics and Political Science, vol. 65(257), pages 69-96, February. [Downloadable!] (restricted)
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  15. Bennett T. McCallum, 1994. "Monetary Policy and the Term Structure of Interest Rates," NBER Working Papers 4938, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. repec:cup:macdyn:v:7:y:2003:i:4:p:567-85 is not listed on IDEAS
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  25. Gonzalo, Jesus & Ng, Serena, 2001. "A systematic framework for analyzing the dynamic effects of permanent and transitory shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 25(10), pages 1527-1546, October. [Downloadable!] (restricted)
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  26. Cubadda, Gianluca & Hecq, Alain, 2001. "On non-contemporaneous short-run co-movements," Economics Letters, Elsevier, vol. 73(3), pages 389-397, December. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Osmani Teixeira de Carvalho Guillén & João Victor Issler & George Athanasopoulos, 2005. "Forecasting Accuracy and Estimation Uncertainty Using VAR Models with Short- and Long-Term Economic Restrictions: A Monte-Carlo Study," Monash Econometrics and Business Statistics Working Papers 15/05, Monash University, Department of Econometrics and Business Statistics. [Downloadable!]
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