Structural analysis of vector error correction models with exogenous I(1) variables

Mohammad Pesaran, Richard Smith () and Yongcheol Shin

Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh

Abstract: This paper generalizes the existing cointegration analysis literature in two respects. Firstly, the problem of efficient estimation of vector error correction models containing exogenous I(1) variables is examined. The asymptotic distributions of the (log-) likelihood ratio statistics for testing cointegrating rank are derived under different intercept and trend specifications and their respective critical values are tabulated. Tests for the presence of an interceptor linear trend in the cointegrating relations are also developed together with model misspecification tests. Secondly, efficient estimation of vector error correction models when the short-run dynamics may differ within and between equations is considered. A re-examination of the purchasing power parity and the uncovered interest rate parity hypotheses is conducted using U.K. data under the maintained assumption of exogenously given foreign and oil prices.

Keywords: structural vector correction error; cointegration; unit roots; likelihood ratio statistics; critical values; seemingly unrelated regression; Monte Carlo simulations; purchasing power parity; uncovered interest rate parity (search for similar items in EconPapers)
JEL-codes: C12 C13 C32 (search for similar items in EconPapers)
Pages: 46
Date: 1999-10, Revised 1999-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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http://www.econ.ed.ac.uk/papers/id38_esedps.pdf Revised version, October 1999 (application/pdf)

Related works:
Journal Article: Structural analysis of vector error correction models with exogenous I(1) variables (2000)
Working Paper: Structural Analysis of Vector Error Correction Models with Exogenous I(1) Variables (1997)
Working Paper: Structural analysis of vector error correction models with exogenous I(1) variables (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:edn:esedps:38

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