Noncausal Autoregressions for Economic Time Series
Markku Lanne and
Pentti Saikkonen ()
Journal of Time Series Econometrics, 2011, vol. 3, issue 3, 1-32
This paper is concerned with univariate noncausal autoregressive models and their potential usefulness in economic applications. In these models, future errors are predictable, indicating that they can be used to empirically approach rational expectations models with nonfundamental solutions. In the previous theoretical literature, nonfundamental solutions have typically been represented by noninvertible moving average models. However, noncausal autoregressive and noninvertible moving average models closely approximate each other, and therefore, the former provide a viable and practically convenient alternative. We show how the parameters of a noncausal autoregressive model can be estimated by the method of maximum likelihood and derive related test procedures. Because noncausal autoregressive models cannot be distinguished from conventional causal autoregressive models by second order properties or Gaussian likelihood, a model selection procedure is proposed. As an empirical application, we consider modeling the U.S. inflation which, according to our results, exhibits purely forward-looking dynamics.
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Working Paper: Noncausal autoregressions for economic time series (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:jtsmet:v:3:y:2011:i:3:n:2
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