Stock Adjustment for Multicointegrated Series

Tae Hwy Lee

Empirical Economics, 1996, vol. 21, issue 4, 633-39

Abstract: A typical stock adjustment model is a partial adjustment process to maintain simultaneously the two kinds of equilibrium relationships: a flow-flow relationship and a stock-flow relationship. We show that the stock adjustment model is an error correction model of 'multicointegrated' time series, and also an optimal decision rule generated from an intertemporal optimization problem. Economic examples in inventory model, housing construction, and consumption function are discussed.

Date: 1996
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