MODELING MACROECONOMIC SUBAGGREGATES: AN APPLICATION OF NONLINEAR COINTEGRATION
Adusei Jumah () and
Robert Kunst ()
Macroeconomic Dynamics, 2008, vol. 12, issue 2, 151-171
Many macroeconometric models depict situations where the shares of the major demand aggregates in output are stable over time. The joint dynamic behavior of the considered demand aggregate and output may thus be approximated by a cointegrated vector autoregression. However, the shares of many demand subaggregates in output are rather mobile and changing over time. In order to simultaneously capture the flexibility of the shares of the subaggregates and the long-run constancy of the share of the total aggregate, we consider trivariate systems of two macroeconomic subaggregates and output with error-correction terms that are nonlinear functions of the original variables. The merits of the models are evaluated by means of several forecasting experiments.
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