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Illustration Of Vector Autoregression-Var With Possibly Integrated Processes: Application To The Budget Revenues, Expenditures And Industrial Output

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  • Marjan Nikolov

Abstract

In a VAR estimation the preference for variables to be stationary exists. The tests for cointegration ranks in Johansen type of ECM are sensitive to the values of the parameters in finite samples and hence not very reliable for economic time series consequently and thus, the strategy for testing economic hypothesis conditioned on the estimation of a unit root, a cointegrating rank and cointegrating vectors may suffer from severe pretest biases. The significance of the fiscal synchronization hypothesis in Macedonia shows that the Government in the period 1995-2004 was planning the fiscal strategy in a cost benefit framework by simultaneously comparing the marginal revenues with the marginal costs. However, a causality relationship between the industrial output and the Government fiscal operations was not significant.

Suggested Citation

  • Marjan Nikolov, 2006. "Illustration Of Vector Autoregression-Var With Possibly Integrated Processes: Application To The Budget Revenues, Expenditures And Industrial Output," Journal Articles, Center For Economic Analyses, pages 1-17, June.
    • Handle: RePEc:cmk:journl:y:2006:p:1-17
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    References listed on IDEAS

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    1. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    2. Lutkepohl, Helmut & Reimers, Hans-Eggert, 1992. "Impulse response analysis of cointegrated systems," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 53-78, January.
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