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A Long-Run Structural Macroeconometric Model for Germany: An Empirical Note


  • Chen, Pu
  • Schneider, Elena
  • Frohn, Joachim


To provide an modelling strategy with transparent and theoretically coherent foundation has been one of the targets of the paper by Garratt, Lee, Pesaran and Shin. They develop a core model for a small open economy based production technology, arbitrage conditions, flow identities and long-run solvency conditions. This leads to five long-run relations: the uncovered interest rate parity, the purchasing power parity, production function, trade balance and real money balance. Since the economic theory there is formulated generally but not restricted to the economy of UK for which their empirical model is implemented, we expect that this modelling strategy should be able to generate similar results for the data of other countries. In this empirical note we apply the modelling strategy to German data to see in how far the economic theory formulated there can account for German data. We are able to identify five cointegration relations in a conditional vector error correction model and the overidentification restrictions of the five cointegration relations as, UIP, PPP, production function, trade balance and real money balance are not rejected by the data.

Suggested Citation

  • Chen, Pu & Schneider, Elena & Frohn, Joachim, 2008. "A Long-Run Structural Macroeconometric Model for Germany: An Empirical Note," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-12.
  • Handle: RePEc:zbw:ifweej:7287

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    References listed on IDEAS

    1. William J. Crowder & Dennis L. Hoffman & Robert H. Rasche, 1999. "Identification, Long-Run Relations, and Fundamental Innovations in a Simple Cointegrated System," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 109-121, February.
    2. King, Robert G. & Plosser, Charles I. & Stock, James H. & Watson, Mark W., 1991. "Stochastic Trends and Economic Fluctuations," American Economic Review, American Economic Association, vol. 81(4), pages 819-840, September.
    3. Jordi GalĂ­, 1992. "How Well Does The IS-LM Model Fit Postwar U. S. Data?," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 709-738.
    4. Anthony Garratt & Kevin Lee & Mohammad Hashem Pesaran & Yongcheol Shin, 1998. "A structural cointegrating VAR approach to macroeconometric modelling," ESE Discussion Papers 8, Edinburgh School of Economics, University of Edinburgh.
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    More about this item


    Long-Run Structural VAR; Macroeconomic Modelling;

    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
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity


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