Speed of Adjustment in Cointegrated Systems

Luca Fanelli (luca.fanelli@unibo.it) and Paolo Paruolo

MPRA Paper from University Library of Munich, Germany

Abstract: This paper considers the speed of adjustment to long-run equilibria, in the context of cointegrated Vector Autoregressive Processes (VAR). We discuss the definition of multivariate p-lives for any indicator of predictive ability, concentrating on cumulated interim multipliers which converge to impact factor for increasing forecasting horizon. Interim multipliers are related to autoregressive Granger-causality coefficients, structural or generalized cumulative impulse responses. We discuss the relation of the present definition of multivariate p-lives with existing definitions for univariate time series and for nonlinear multivariate stationary processes. For multivariate (possibly cointegrated) VAR systems, p-lives are functions of the dynamics of the system only,and do not depend on the history path on which the forecast is based. Hence one can discuss inference on p-lives as (discrete) functions of parameters in the VAR model. We discuss a likelihood-based approach, both for point estimation and for confidence regions. An illustrative application to adjustment to purchasing-power parity (PPP) is presented.

Keywords: p-life; speed of adjustment; impact factors; vector equilibrium correction; shock absorption (search for similar items in EconPapers)
JEL-codes: C32 C52 F31 (search for similar items in EconPapers)
Date: 2007-06
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Speed of adjustment in cointegrated systems (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:9174

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