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Cointegration, long-run structural modelling and weak exogeneity: Two models of the UK economy

  • Jacobs, Jan P.A.M.
  • Wallis, Kenneth F.

Cointegration ideas as introduced by Granger in 1981 are commonly embodied in empirical macroeconomic modelling through the vector error correction model (VECM). It has become common practice in these models to treat some variables as weakly exogenous, resulting in conditional VECMs. This paper studies the consequences of different approaches to weak exogeneity for the dynamic properties of such models, in the context of two models of the UK economy, one a national-economy model, the other the UK submodel of a global model. Impulse response and common trend analyses are shown to be sensitive to these assumptions and other specification choices.

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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 158 (2010)
Issue (Month): 1 (September)
Pages: 108-116

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Handle: RePEc:eee:econom:v:158:y:2010:i:1:p:108-116
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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  1. Garratt, A. & Lee, K. & Pesaran, M. H. & Shin, Y., 1998. "A Long-run Structural Macro-econometric Model of the UK," Cambridge Working Papers in Economics 9812, Faculty of Economics, University of Cambridge.
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  12. Garratt, Anthony & Lee, Kevin & Pesaran, M. Hashem & Shin, Yongcheol, 2012. "Global and National Macroeconometric Modelling: A Long-Run Structural Approach," OUP Catalogue, Oxford University Press, number 9780199650460, March.
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