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Autoregressive Distributed Lag Models and Cointegration

In: Modern Econometric Analysis

Author

Listed:
  • Uwe Hassler

    (J.W. Goethe Universität Frankfurt)

  • Jürgen Wolters

    (Freie Universität Berlin)

Abstract

This paper considers cointegration analysis within an autoregressive distributed lag (ADL) framework. First, different reparameterizations and interpretations are reviewed. Then we show that the estimation of a cointegrating vector from an ADL specification is equivalent to that from an error-correction (EC) model. Therefore, asymptotic normality available in the ADL model under exogene-ity carries over to the EC estimator. Next, we review cointegration tests based on EC regressions. Special attention is paid to the effect of linear time trends in case of regressions without detrending. Finally, the relevance of our asymptotic results in finite samples is investigated by means of computer experiments. In particular, it turns out that the conditional EC model is superior to the unconditional one.

Suggested Citation

  • Uwe Hassler & Jürgen Wolters, 2006. "Autoregressive Distributed Lag Models and Cointegration," Springer Books, in: Olaf Hübler & Jachim Frohn (ed.), Modern Econometric Analysis, chapter 5, pages 57-72, Springer.
    • Handle: RePEc:spr:sprchp:978-3-540-32693-9_5
    DOI: 10.1007/3-540-32693-6_5
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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

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