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Recursive Estimation in Cointegrated VAR-Models

Author

Listed:
  • Henrik Hansen

    (Institute of Economics, University of Copenhagen)

  • Søren Johansen

    (Institute of Mathematical Statistics, University of Copenhagen)

Abstract

Some methods for the evaluation of parameter constancy in cointegrated vector autoregressive (VAR) models are discussed. Two different ways of re-estimating the VAR-model are proposed; one in which all parameters are estimated recursively based upon the likelihood function for the first observations, and another in which the cointegrating relations are estimated recursively from a likelihood function, where the short-run parameters have been concentrated out. We suggest graphical procedures based on recursively estimated eigenvalues to evaluate the constancy of the long-run parameters in the model. Specifically, we look at the time paths of the eigenvalues using a new result on the asymptotic distribution of the estimated eigenvalues. Furthermore, we show that the fluctuation test by Ploberger et al. (1989) and the Lagrange multiplier (LM) type test for constancy of parameters by Nyblom (1989) can be applied to test the constancy of the long-run parameters in the cointegrated VAR-model. All results are illustrated using a model for the term structure of interest rates on US Treasury securities.

Suggested Citation

  • Henrik Hansen & Søren Johansen, 1992. "Recursive Estimation in Cointegrated VAR-Models," Discussion Papers 92-13, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:9213
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    More about this item

    Keywords

    determination of interest rates; VAR; USA;

    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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