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Extracting Information from the Data: A Popperian View on Empirical Macro

  • Katarina Juselius

    (Institute of Economics, University of Copenhagen)

  • Søren Johansen

    (Department of Mathematical Statistics, University of Copenhagen)

The cointegrated VAR model is proposed as an empirically coherent framework for analyzing macroeconomic phenomena within a dynamic system of pulling and pushing forces. As an illustration we show how an economic theory for inflation and money demand gives rise to a number of hypotheses formulated as testable parameter restrictions on cointegrating relations and common trends. The procedure not only allows us to test prior theoretical hypotheses in a valid maximum likelihood framework but also provides additional empirical results suggesting how to modify or improve our theoretical understanding. The latter is important when theoretical implications fail to hold in the data.

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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 05-05.

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Length: 29 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:kud:kuiedp:0505
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