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Bayesian Inference in Cointegrated I (2) Systems: A Generalization of the Triangular Model

  • Rodney W. Strachan

This paper generalizes the cointegrating model of Phillips (1991) to allow for I (0), I (1) and I (2) processes. The model has a simple form that permits a wider range of I (2) processes than are usually considered, including a more flexible form of polynomial cointegration. Further, the specification relaxes restrictions identified by Phillips (1991) on the I (1) and I (2) cointegrating vectors and restrictions on how the stochastic trends enter the system. To date there has been little work on Bayesian I (2) analysis and so this paper attempts to address this gap in the literature. A method of Bayesian inference in potentially I (2) processes is presented with application to Australian money demand using a Jeffreys prior and a shrinkage prior.

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Article provided by Taylor & Francis Journals in its journal Econometric Reviews.

Volume (Year): 26 (2007)
Issue (Month): 2-4 ()
Pages: 439-468

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Handle: RePEc:taf:emetrv:v:26:y:2007:i:2-4:p:439-468
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