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Between Cointegration and Multicointegration. Modelling Time Series Dynamics by Cumulative Error Correction Models

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  • Marcus Scheiblecker

    (WIFO)

Abstract

This paper proposes a cumulative error correction model where the summing weights follow a geometrically decreasing function of prior deviations from equilibrium and are estimated from the data. It is shown that this approach is located in between the traditional error correction model – where no weight is given to deviations from steady state prior to the most recent period – and the error correction model based on the idea of multicointegration. The presented form of accumulation does not change the order of integration of the series, like in the multicointegration approach of Granger and Lee (1989). Based on this model type, the relationship between US private consumption and real disposable income of private households is estimated. The short-run forces setting-off last period's deviations are much smaller than a VEC and a conventional single equation ECM suggests. Furthermore, the proposed model outperforms both others in respect of its forecasting power.

Suggested Citation

  • Marcus Scheiblecker, 2012. "Between Cointegration and Multicointegration. Modelling Time Series Dynamics by Cumulative Error Correction Models," WIFO Working Papers 431, WIFO.
  • Handle: RePEc:wfo:wpaper:y:2012:i:431
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    File URL: http://www.wifo.ac.at/wwa/pubid/44544
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    References listed on IDEAS

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    Cited by:

    1. repec:rfa:aefjnl:v:4:y:2017:i:5:p:9-20 is not listed on IDEAS
    2. Marcus Scheiblecker, 2017. "Modelling Short-run Money Demand for the US," Applied Economics and Finance, Redfame publishing, vol. 4(5), pages 9-20, September.

    More about this item

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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