Macroeconometric Modelling with a Global Perspective

Mohammad Pesaran and Ronald Smith

No 1659, CESifo Working Paper Series from CESifo

Abstract: This paper provides a synthesis and further development of a global modelling approach introduced in Pesaran, Schuermann and Weiner (2004), where country specific models in the form of VARX* structures are estimated relating a vector of domestic variables, xit, to their foreign counterparts, x*it, and then consistently combined to form a Global VAR (GVAR). It is shown that the VARX* models can be derived as the solution to a dynamic stochastic general equilibrium (DSGE) model where over-identifying long-run theoretical relations can be tested and imposed if acceptable. This gives the system a transparent long-run theoretical structure. Similarly, short-run over-identifying theoretical restrictions can be tested and imposed if accepted. Alternatively, if one has less confidence in the short-run theory the dynamics can be left unrestricted. The assumption of the weak exogeneity of the foreign variables for the long-run parameters can be tested, where x*it variables can be interpreted as proxies for global factors. Rather than using deviations from ad hoc statistical trends, the equilibrium values of the variables reflecting the long-run theory embodied in the model can be calculated. This approach has been used in a wide variety of contexts and for a wide variety of purposes. The paper also provides some new results.

Keywords: Global VAR (GVAR); DSGE models; VARX* (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-ecm and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (106)

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Related works:
Journal Article: MACROECONOMETRIC MODELLING WITH A GLOBAL PERSPECTIVE* (2006)
Working Paper: Macroeconometric Modelling with a Global Perspective (2006)
Working Paper: Macroeconometric Modelling with a Global Perspective (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1659

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