A Bayesian Analysis of Exogeneity in Models with Latent Variables

Anna Pajor

Central European Journal of Economic Modelling and Econometrics, 2011, vol. 3, issue 2, 49-73

Abstract: This paper presents some new results on exogeneity in models with latent variables. The concept of exogeneity is extended to the class of models with latent variables, in which a subset of parameters and latent variables is of interest. Exogeneity is discussed from the Bayesian point of view. We propose sufficient weak and strong exogeneity conditions in the vector error correction model (VECM) with stochastic volatility (SV) disturbances. Finally, an empirical illustration based on the VECM-SV model for the daily growth rates of two main official Polish exchange rates: USD/PLN and EUR/PLN, as well as EUR/USD from the international Forex market is presented. The exogeneity of the EUR/USD rate is examined. The strong exogeneity hypothesis of the EUR/USD rate is not rejected by the data.

Keywords: exogeneity; Bayesian cuts; latent variables; non-causality; stochastic volatility (search for similar items in EconPapers)
JEL-codes: C11 C32 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:psc:journl:v:3:y:2011:i:2:p:49-73

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