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Allowing the Data to Speak Freely: The Macroeconometrics of the Cointegrated Vector Autoregression

Kevin D. Hoover (), Katarina Juselius and Soren Johansen ()

No 07-35, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: An explication of the key ideas behind the Cointegrated Vector Autoregression Approach. The CVAR approach is related to Haavelmo’s famous “Probability Approach in Econometrics” (1944). It insists on careful stochastic specification as a necessary groundwork for econometric inference and the testing of economic theories. In time-series data, the probability approach requires careful specification of the integration and cointegration properties of variables in systems of equations. The relationship between the CVAR approach and wider methodological issues and between it and related approaches (e.g., the LSE approach) are explored. The specific-to-general strategy of widening the scope of econometric models to identify stochastic trends and cointegrating relations and to nest theoretical economic models is illustrated with the example of purchasing-power parity

Keywords: cointegrated VAR; stochastic trends; Purchasing Power Parity (search for similar items in EconPapers)
JEL-codes: B41 C32 C51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2007-11
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