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Analysis of co-explosive processes

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Abstract

A vector autoregressive model allowing for unit roots as well as explosive characteristic roots is developed. The Granger-Johansen representation shows that this results in processes with two common features: a random walk and an explosively growing process. Co-integrating and co-explosive vectors can be found which eliminate these common factors. Likelihood ratio tests for linear restrictions on the co-explosive vectors are derived. As an empirical illustration the method is applied to data from the extreme Yugoslavian hyper-inflation of the 1990s.

Suggested Citation

  • Bent Nielsen, 2005. "Analysis of co-explosive processes," Economics Papers 2005-W08, Economics Group, Nuffield College, University of Oxford.
    • Handle: RePEc:nuf:econwp:0508
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    File URL: http://www.nuffield.ox.ac.uk/economics/papers/2005/w8/explosive.pdf
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    References listed on IDEAS

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    1. Johansen, Soren & Schaumburg, Ernst, 1998. "Likelihood analysis of seasonal cointegration," Journal of Econometrics, Elsevier, vol. 88(2), pages 301-339, November.
    2. Bent Nielsen, 2000. "The Asymptotic Distribution of Likelihood Ratio Test Statistics for Cointegration in Unstable Vector Autoregressive Processes," Economics Series Working Papers 2000-W24, University of Oxford, Department of Economics.
    3. Taylor, Mark P, 1991. "The Hyperinflation Model of Money Demand Revisited," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 327-351, August.
    4. Nielsen, Bent, 2001. "The Asymptotic Distribution of Unit Root Tests of Unstable Autoregressive Processes," Econometrica, Econometric Society, vol. 69(1), pages 211-219, January.
    5. Bent Nielsen, 2004. "On the Distribution of Likelihood Ratio Test Statistics for Cointegration Rank," Econometric Reviews, Taylor & Francis Journals, vol. 23(1), pages 1-23.
    6. Bent Nielsen, 2006. "Correlograms for non-stationary autoregressions," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 68(4), pages 707-720.
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    Keywords

    Asymptotic normality; Co-explosiveness; Cointegration; Explosive processes; Hyper-inflation; Likelihood ratio tests; Vector autoregression;
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