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A Perspective on Unit Root and Cointegration in Applied Macroeconomics

  • W A Razzak

I discuss econometric issues of high relevance to economists in central banks whose job is to interpret the permanency of shocks and provide policy advice to policymakers. Trend, unit root, and persistence are difficult to interpret. There are numerous econometric tests, which vary in their power and usefulness. I provide a set of strategies on dealing with macro time series.

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File URL: http://www.usc.es/economet/reviews/ijaeqs416.pdf
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Article provided by Euro-American Association of Economic Development in its journal International Journal of Applied Econometrics and Quantitative Studies .

Volume (Year): 4 (2007)
Issue (Month): 1 ()
Pages: 77-102

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Handle: RePEc:eaa:ijaeqs:v:4:y2007:i:1_6
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  1. W A Razzak, 2002. "Monetary policy and forecasting inflation with and without the output gap," Reserve Bank of New Zealand Discussion Paper Series DP2002/03, Reserve Bank of New Zealand.
  2. Guisan, M.Carmen, 2004. "A Comparison of Causality Tests Applied to the Bilateral Relationship between Consumption and GDP in the USA and Mexico," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 1(1), pages 115-130.
  3. Christopher A. Sims, 1988. "Bayesian skepticism on unit root econometrics," Discussion Paper / Institute for Empirical Macroeconomics 3, Federal Reserve Bank of Minneapolis.
  4. Perron, P., 1986. "Trends and Random Walks in Macroeconomic Time Series: Further Evidence From a New Approach," Cahiers de recherche 8650, Universite de Montreal, Departement de sciences economiques.
  5. Plosser, Charles I. & Schwert, G. William, 1977. "Estimation of a non-invertible moving average process : The case of overdifferencing," Journal of Econometrics, Elsevier, vol. 6(2), pages 199-224, September.
  6. Perron, P., 1994. "Further Evidence on Breaking Trend Functions in Macroeconomic Variables," Cahiers de recherche 9421, Universite de Montreal, Departement de sciences economiques.
  7. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  8. Bennett T. McCallum, 1993. "Unit roots in macroeconomic time series: some critical issues," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 13-44.
  9. Peter C.B. Phillips & Sam Ouliaris, 1987. "Asymptotic Properties of Residual Based Tests for Cointegration," Cowles Foundation Discussion Papers 847R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1988.
  10. Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
  11. Peter C.B. Phillips, 2003. "Laws and Limits of Econometrics," Cowles Foundation Discussion Papers 1397, Cowles Foundation for Research in Economics, Yale University.
  12. Glenn D. Rudebusch, 1992. "The uncertain unit root in real GNP," Finance and Economics Discussion Series 193, Board of Governors of the Federal Reserve System (U.S.).
  13. Perron, Pierre, 1990. "Testing for a Unit Root in a Time Series with a Changing Mean," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 153-62, April.
  14. Lawrence J. Christiano & Martin Eichenbaum, 1989. "Unit roots in real GNP: do we know, and do we care?," Discussion Paper / Institute for Empirical Macroeconomics 18, Federal Reserve Bank of Minneapolis.
  15. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  16. Pantula, Sastry G & Gonzalez-Farias, Graciela & Fuller, Wayne A, 1994. "A Comparison of Unit-Root Test Criteria," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 449-59, October.
  17. Craig S. Hakkio & Mark Rush, 1990. "Cointegration: how short is the long run?," Research Working Paper 90-08, Federal Reserve Bank of Kansas City.
  18. Peter C.B. Phillips, 1985. "Understanding Spurious Regressions in Econometrics," Cowles Foundation Discussion Papers 757, Cowles Foundation for Research in Economics, Yale University.
  19. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  20. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  21. Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233.
  22. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
  23. Kenneth D. West, 1987. "On the Interpretation of Near Random-Walk Behavior in GNP," NBER Working Papers 2364, National Bureau of Economic Research, Inc.
  24. Cheung, Yin-Wong & Lai, Kon S, 1993. "Finite-Sample Sizes of Johansen's Likelihood Ration Tests for Conintegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 313-28, August.
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