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Structural Error Correction Models: Instrumental Variables Methods and Application to an Exchange Rate Model

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  • Jaebeom Kim
  • Masao Ogaki

  • Min-Seok Yang

Abstract

Error correction models are widely used to estimate dynamic cointegrated systems. In most applications error correction models are reduced form models. As a result, non-structural speed of adjustment coefficients are estimated in these applications. A single equation instrumental variable method can be used to estimate a structural speed of adjustment coefficient. This paper develops a system instrumental variable method to estimate the structural speed of adjustment coefficient in an error correction model. This method utilizes Hansen and Sargent's (1982) instrumental variable estimator for linear rational expectations models, and is applied to an exchange rate model with sticky prices.
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Suggested Citation

  • Jaebeom Kim & Masao Ogaki & Min-Seok Yang, 2001. "Structural Error Correction Models: Instrumental Variables Methods and Application to an Exchange Rate Model," Working Papers 01-01, Ohio State University, Department of Economics.
    • Handle: RePEc:osu:osuewp:01-01
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    Cited by:

    1. Kevin X.D. Huang & Thaneepanichskul Suchada, 2003. "Sources of Exchange Rate Fluctuations: The Cases of Mexico and Thailand in the Aftermaths of their Recent Currency Crises," Annals of Economics and Finance, Society for AEF, vol. 4(2), pages 375-400, November.
    2. Jaebeom Kim, 2004. "Half‐lives of Deviations from PPP: Contrasting Traded and Nontraded Components of Consumption Baskets," Review of International Economics, Wiley Blackwell, vol. 12(1), pages 162-168, February.
    3. Astorga, Pablo, 2012. "Mean reversion in long-horizon real exchange rates: Evidence from Latin America," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1529-1550.
    4. Kim, Jaebeom & Ogaki, Masao, 2004. "Purchasing Power Parity for Traded and Non-traded Goods: A Structural Error Correction Model Approach," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 22(1), pages 1-25, March.
    5. Kyungho Jang, 2001. "Impulse Response Analysis with Long Run Restrictions on Error Correction Models," Working Papers 01-04, Ohio State University, Department of Economics.

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