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Cointegration Rank Test and Long Run Specification: A Note on the Robustness of Structural Demand Systems

Author

Listed:
  • D. Aristei

    (Department of Economics, Finance and Statistics, University of Perugia)

  • Luca Pieroni

    (Department of Economics, Finance and Statistics, University of Perugia and Depratment of Economics, University of the West of England, Bristol)

Abstract

Private demand systems provide a practical application for analyzing identification issues in cointegration analysis. The paper conducts Montecarlo simulation experiments of cointegrated demand systems by assuming non-separability of government consumption. This framework enables further to test the robustness of models under alternative empirical specifications in which the homogeneity restriction is assumed to hold. The results highlight that separability of utility function with respect to government spending and the over-inclusion of lagged dependent variables introduce important bias in identifying the long run demand system, while the model specification with homogeneity restriction perform better when the theoretical hypothesis is contained in the data.Length: 34 pages

Suggested Citation

  • D. Aristei & Luca Pieroni, 2008. "Cointegration Rank Test and Long Run Specification: A Note on the Robustness of Structural Demand Systems," Working Papers 0809, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    • Handle: RePEc:uwe:wpaper:0809
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    File URL: http://carecon.org.uk/DPs/0809.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Non-separable structural models; Demand systems; Homogeneity.;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H40 - Public Economics - - Publicly Provided Goods - - - General

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