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Error Correction and Long-Run Equilibrium in Continuous Time


  • Phillips, P C B


This paper deals with error correction models (ECM's) and cointegrated systems that are formulated in continuous time. Long-run equilibrium coefficients in the continuous system are always identified in the discrete time reduced form, so that there is no aliasing problem for these parameters. The long- run relationships are also preserved under quite general data filtering. Frequency domain procedures are outlined for estimation and inference. These methods are asymptotically optimal under Gaussian assumptions and they have the advantages of simplicity of computation and generality of specification, thereby avoiding some methodological problems of dynamic specification. In addition, they facilitate the treatment of data irregularities such as mixed stock and flow data and temporally aggregate partial equilibrium formulations. Models with restricted cointegrating matrices are also considered. Copyright 1991 by The Econometric Society.

Suggested Citation

  • Phillips, P C B, 1991. "Error Correction and Long-Run Equilibrium in Continuous Time," Econometrica, Econometric Society, vol. 59(4), pages 967-980, July.
  • Handle: RePEc:ecm:emetrp:v:59:y:1991:i:4:p:967-80

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    References listed on IDEAS

    1. Allan W. Gregory & Michael McAleer, 1983. "Testing Non-Nested Specifications of Money Demand for Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 16(4), pages 593-602, November.
    2. McAleer, Michael, 1981. "A small sample test for non-nested regression models," Economics Letters, Elsevier, vol. 7(4), pages 335-338.
    3. Fisher, Gordon & McAleer, Michael, 1979. "On the interpretation of the cox test in econometrics," Economics Letters, Elsevier, vol. 4(2), pages 145-150.
    4. Fisher, Gordon R. & McAleer, Michael, 1981. "Alternative procedures and associated tests of significance for non-nested hypotheses," Journal of Econometrics, Elsevier, vol. 16(1), pages 103-119, May.
    5. Dastoor, Naorayex K., 1983. "Some aspects of testing non-nested hypotheses," Journal of Econometrics, Elsevier, vol. 21(2), pages 213-228, February.
    6. Hall, A. D., 1983. "Confidence contours for two test statistics for non-nested regression models," Journal of Econometrics, Elsevier, vol. 21(1), pages 155-160, January.
    7. J. A. Hausman & W. E. Taylor, 1980. "Comparing Specification Tests and Classical Tests," Working papers 266, Massachusetts Institute of Technology (MIT), Department of Economics.
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