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

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  • 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

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Bibliographic Info

Paper provided by Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol in its series Working Papers with number 0809.

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Date of creation: Nov 2008
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Handle: RePEc:uwe:wpaper:0809

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Keywords: Non-separable structural models; Demand systems; Homogeneity.;

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