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Cointegration, Long-Run Structural Modelling And Weak Exogeneity: Two Models Of The Uk Economy

  • Jan P.A.M. Jacobs

    ()

  • Kenneth F. Wallis

    ()

Cointegration ideas as introduced by Granger (1981) are commonly embodied in empirical macroeconomic modelling through the vector error correction model (VECM). It has also become common practice in these models to treat some variables as weakly exogenous, resulting in conditional VECMs. This paper studies the consequences of different approaches to weak exogeneity for the dynamic properties of such models, in the context of two models of the UK economy, one a national-economy model, the other the UK submodel of a global model. Impulse response and common trend analyses are shown to be sensitive to these assumptions and other specification choices.

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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2007-12.

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Length: 23 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:een:camaaa:2007-12
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  1. Gonzalo, Jesus & Granger, Clive W J, 1995. "Estimation of Common Long-Memory Components in Cointegrated Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 27-35, January.
  2. Paruolo, Paolo, 1997. "Asymptotic Inference on the Moving Average Impact Matrix in Cointegrated 1(1) VAR Systems," Econometric Theory, Cambridge University Press, vol. 13(01), pages 79-118, February.
  3. Jurgen A. Doornik & David F. Hendry & Bent Nielsen, 1998. "Inference in Cointegrating Models: UK M1 Revisited," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 533-572, December.
  4. Pesaran, Mohammad Hashem & Holly, Sean & Dees, Stephane & Smith, L. Vanessa, 2007. "Long Run Macroeconomic Relations in the Global Economy," Economics Discussion Papers 2007-7, Kiel Institute for the World Economy.
  5. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679, March.
  6. Adrian R. Pagan & M. Hashem Pesaran, 2008. "Econometric Analysis of Structural Systems with Permanent and Transitory Shocks," Discussion Papers 2008-04, School of Economics, The University of New South Wales.
  7. A Garratt & K Lee & M Pesaran & Yongcheol Shin, 2004. "A long run structural macroeconometric model of the UK," ESE Discussion Papers 35, Edinburgh School of Economics, University of Edinburgh.
  8. M. Hashem Pesaran & Yongcheol Shin, 2002. "Long-Run Structural Modelling," Econometric Reviews, Taylor & Francis Journals, vol. 21(1), pages 49-87.
  9. Levtchenkova, S & Pagan, A R & Robertson, J C, 1998. " Shocking Stories," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 507-32, December.
  10. Michael R. Wickens & Roberto Motto, 2001. "Estimating shocks and impulse response functions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 371-387.
  11. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  12. Stephane Dees & Filippo di Mauro & M. Hashem Pesaran & L. Vanessa Smith, 2004. "Exploring the International Linkages of the Euro Area: A Global VAR Analysis," IEPR Working Papers 04.6, Institute of Economic Policy Research (IEPR).
  13. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  14. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
  15. Jennifer Castle & David Hendry, 2007. "Forecasting UK Inflation: the Roles of Structural Breaks and Time Disaggregation," Economics Series Working Papers 309, University of Oxford, Department of Economics.
  16. Garratt, Anthony & Lee, Kevin & Pesaran, M. Hashem & Shin, Yongcheol, 2012. "Global and National Macroeconometric Modelling: A Long-Run Structural Approach," OUP Catalogue, Oxford University Press, number 9780199650460, March.
  17. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
  18. Kenneth F. Wallis & Jan P. A. M. Jacobs, 2005. "Comparing SVARs and SEMs: two models of the UK economy," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 209-228.
  19. Fisher, Lance A. & Huh, Hyeon-seung, 2007. "Permanent-Transitory Decompositions Under Weak Exogeneity," Econometric Theory, Cambridge University Press, vol. 23(01), pages 183-189, February.
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