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Exact Rational Expectations, Cointegration, and Reduced Rank Regression

Author

Listed:
  • Soren Johansen

    (Department of Economics, University of Copenhagen)

  • Anders Rygh Swensen

    (University of Oslo)

Abstract

We interpret the linear relations from exact rational expectations models as restrictions on the parameters of the statistical model called the cointegrated vector autoregressive model for non-stationary variables. We then show how reduced rank regression, Anderson (1951), plays an important role in the calculation of maximum likelihood estimation of the restricted parameters.

Suggested Citation

  • Soren Johansen & Anders Rygh Swensen, 2007. "Exact Rational Expectations, Cointegration, and Reduced Rank Regression," Discussion Papers 07-29, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:0729
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    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

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