Error Correction and Long-Run Equilibrium in Continuous Time

Peter Phillips

Econometrica, 1991, vol. 59, issue 4, 967-80

Abstract: This paper deals with error correction models (ECM's) and cointegrated systems that are formulated in continuous time. Long-run equilibrium coefficients in the continuous system are always identified in the discrete time reduced form, so that there is no aliasing problem for these parameters. The long- run relationships are also preserved under quite general data filtering. Frequency domain procedures are outlined for estimation and inference. These methods are asymptotically optimal under Gaussian assumptions and they have the advantages of simplicity of computation and generality of specification, thereby avoiding some methodological problems of dynamic specification. In addition, they facilitate the treatment of data irregularities such as mixed stock and flow data and temporally aggregate partial equilibrium formulations. Models with restricted cointegrating matrices are also considered. Copyright 1991 by The Econometric Society.

Date: 1991
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Related works:
Working Paper: Error Correction and Long Run Equilibrium in Continuous Time (1989)
Software Item: PHILLIPSHANNAN: RATS procedure to compute Phillips-Hannan Efficient estimator for multivariate regressions
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