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Bayesian Analysis of Weak Form Reduced Rank Structure in VEC Models

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  • Justyna Wróblewska

    () (Cracow University of Economics)

Abstract

The concept of cointegration that enables the proper statistical analysis of long-run comovements between unit root processes has been of great interest to numerous economic investigators since it was introduced. However, investigation of short-run comovement between economic time series seems equally important, especially for economic decision-makers. The concept of common features and based on it the idea of two additional reduced rank structure forms in a VEC model (the strong and the weak one) may be of some help. The strong form reduced rank structure (SF) takes place when at least one linear combination of the first differences of the variables exists, which is white noise. However, when this assumption seems too strong, the weaker case can be considered. The weak form appears when the linear combination of first differences adjusted for long-run efects exists, which is white noise. The main focus of this paper is a Bayesian analysis of the VEC models involving the weak form of reduced rank restrictions. After the introduction and discussion of the said Bayesian model, the presented methods will be illustrated by an empirical investigation of the price - wage spiral in the Polish economy.

Suggested Citation

  • Justyna Wróblewska, 2011. "Bayesian Analysis of Weak Form Reduced Rank Structure in VEC Models," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 3(3), pages 169-186, September.
  • Handle: RePEc:psc:journl:v:3:y:2011:i:3:p:169-186
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    References listed on IDEAS

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    1. Hecq, Alain & Palm, Franz C. & Urbain, Jean-Pierre, 2006. "Common cyclical features analysis in VAR models with cointegration," Journal of Econometrics, Elsevier, vol. 132(1), pages 117-141, May.
    2. Rodney Strachan & Herman K. van Dijk, "undated". "Bayesian Model Averaging in Vector Autoregressive Processes with an Investigation of Stability of the US Great Ratios and Risk of a Liquidity Trap in the USA, UK and Japan," MRG Discussion Paper Series 1407, School of Economics, University of Queensland, Australia.
    3. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(4), pages 369-380, October.
    4. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(4), pages 393-395, October.
    5. Gary Koop & Roberto León-González & Rodney W. Strachan, 2010. "Efficient Posterior Simulation for Cointegrated Models with Priors on the Cointegration Space," Econometric Reviews, Taylor & Francis Journals, vol. 29(2), pages 224-242, April.
    6. Villani, Mattias, 2006. "Bayesian point estimation of the cointegration space," Journal of Econometrics, Elsevier, vol. 134(2), pages 645-664, October.
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    Cited by:

    1. Justyna Wróblewska, 2012. "Bayesian Analysis of Weak Form Polynomial Reduced Rank Structures in VEC Models," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 4(4), pages 253-267, December.

    More about this item

    Keywords

    cointegration; Bayesian analysis; common cyclical features;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • 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
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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