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Bayesian Inference in Cointegrated I (2) Systems: a Generalisation of the Triangular Model

  • Rodney W. Strachan

    ()

This paper generalises the cointegrating model of Phillips (1991) to allow for I (0) , I (1) and I (2) processes. The model has a simple form that permits a wider range of I (2) processes than are usually considered, including a more flexible form of polynomial cointegration. Further, the specification relaxes restrictions identified by Phillips (1991) on the I (1) and I (2) cointegrating vectors and restrictions on how the stochastic trends enter the system. To date there has been little work on Bayesian I (2) analysis and so this paper attempts to address this gap in the literature. A method of Bayesian inference in potentially I (2) processes is presented with application to Australian money demand using a Jeffreys prior and a shrinkage prior.

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File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp05-14.pdf
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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 05/14.

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Date of creation: Jul 2005
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Handle: RePEc:lec:leecon:05/14
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