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Structural Change and Small-Sample Inference in a Long-Run Structural Var Model of UK Aggregate Demand


  • Dimitrios Papaikonomou

    (Economics Department, University of Leicester)


UK aggregate demand is modelled over the period 1965q1-1998q2 within a long-run structural VAR of the following variables: domestic and foreign output, domestic and foreign short-term interest rate, domestic long-term interest rate, the real effective exchange rate and real money balances. The long-run structure imposed on the cointegrating matrix is derived from a simple IS-LM-BP view of aggregate demand. The validity of this structure is tested taking into account the possible presence of structural breaks associated with changes in the exchange rate regime. This involves two innovations: First, small-sample distributions of the relevant test statistics have been simulated using bootstrap techniques; second, convergence problems typically encountered when bootstrapping the tests of over-identification of the cointegrating matrix have been overcome. Having accounted for sample size, there appears to be no evidence with which to reject the structure imposed by the IS-LM-BP theory and the presence of structural change.

Suggested Citation

  • Dimitrios Papaikonomou, 2003. "Structural Change and Small-Sample Inference in a Long-Run Structural Var Model of UK Aggregate Demand," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 6(2), pages 210-236, Winter.
  • Handle: RePEc:ekn:ekonom:v:6:y:2003:i:2:p:210-236

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    Cited by:

    1. Song, ChiUng & Boulier, Bryan L. & Stekler, Herman O., 2009. "Measuring consensus in binary forecasts: NFL game predictions," International Journal of Forecasting, Elsevier, vol. 25(1), pages 182-191.

    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General


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