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Exogeneity in Vector Error Correction Models with Purely Exogenous Long-Run Paths


  • Jacqueline Pradel
  • Christophe Rault


Existing exogeneity conditions of literature are only sufficient and imply 'overly strong' constraints on long-run parameters. This paper presents some new results on exogeneity in vector error correction models. A key concept of the analysis is the 'purely exogenous long-run path', i.e. a cointegrating vector only including 'exogenous' variables. Extending earlier results of Johansen, S. (1992). 'Cointegration in partial systems and the efficiency of single-equation analysis', "Journal of Econometrics", Vol. 52, pp. 389-402 and of Toda and Phillips (1991). "Vector Autoregressions and Causality", Cowles Foundation Discussion Paper, No. 977 among others, we propose a framework based on two canonical representations of the long-run matrix, which can constitute a suitable basis to formulate a necessary and sufficient condition for non-causality as well as a condition for strong exogeneity. An interesting property is that the statistics involved in the sequential procedures for testing these conditions are distributed as chi-squared variables and can, therefore, easily be calculated with the usual statistical computer packages, which makes our approach fully operational, empirically. Finally, the power and size distortions of the sequential test procedures are analysed using Monte Carlo experiments. Copyright 2003 Blackwell Publishing Ltd.

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  • Jacqueline Pradel & Christophe Rault, 2003. "Exogeneity in Vector Error Correction Models with Purely Exogenous Long-Run Paths," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(5), pages 629-653, December.
  • Handle: RePEc:bla:obuest:v:65:y:2003:i:5:p:629-653

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    References listed on IDEAS

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    2. Psaradakis, Zacharias, 1993. "The Demand for Money in Greece: An Exercise in Econometric Modelling with Cointegrated Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(2), pages 215-236, May.
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    7. Johansen, Soren, 1992. "Cointegration in partial systems and the efficiency of single-equation analysis," Journal of Econometrics, Elsevier, vol. 52(3), pages 389-402, June.
    8. Christou, Costas & Swamy, P. A. V. B. & Tavlas, George S., 1998. "A general framework for predicting returns from multiple currency investments," Journal of Economic Dynamics and Control, Elsevier, vol. 22(7), pages 977-1000, May.
    9. Goldfeld, Stephen M. & Sichel, Daniel E., 1990. "The demand for money," Handbook of Monetary Economics,in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 8, pages 299-356 Elsevier.
    10. Hafer, R W & Jansen, Dennis W, 1991. "The Demand for Money in the United States: Evidence from Cointegration Tests," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 155-168, May.
    11. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
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    Cited by:

    1. repec:sbe:breart:v:25:y:2005:i:2:a:2503 is not listed on IDEAS
    2. Imed Drine & Christophe Rault, 2007. "Fluctuations de Change et Performances Economiques," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 50(4), pages 427-444.
    3. Christophe Rault, 2011. "Long-run strong-exogeneity," Economics Bulletin, AccessEcon, vol. 31(1), pages 1-8.
    4. Rault, Christophe, 2005. "Further Results on Weak Exogeneity in Vector Error Correction Models," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 25(2), November.
    5. Christophe Rault, 2007. "Une synthèse de l'exogénéité dans les modèles vectoriels à correction d'erreurs," Post-Print halshs-00202651, HAL.

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