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Inference in Cointegrating Models: UK M1 Revisited

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  • Jurgen A. Doornik
  • David F. Hendry
  • Bent Nielsen

Abstract

The paper addresses the practical determination of cointegration rank. This is difficult for many reasons: deterministic terms play a crucial role in limiting distributions, and systems may not be formulated to ensure similarity to nuisance parameters; finite‐sample critical values may differ from asymptotic equivalents; dummy variables alter critical values, often greatly; multiple cointegration vectors must be identified to allow inference; the data may be I(2) rather than I(1), altering distributions; and conditioning must be done with care. These issues are illustrated by an empirical application of multivariate cointegration analysis to a small model of narrow money, prices, output and interest rates in the UK.

Suggested Citation

  • Jurgen A. Doornik & David F. Hendry & Bent Nielsen, 1998. "Inference in Cointegrating Models: UK M1 Revisited," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 533-572, December.
  • Handle: RePEc:bla:jecsur:v:12:y:1998:i:5:p:533-572
    DOI: 10.1111/1467-6419.00067
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