Exogeneity in vector error correction models with purely exogenous long-run paths

Jacqueline Pradel and Christophe Rault

No 03-10, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: Existing exogeneity conditions of literature are only sufficient and imply “overly strong” constraints on long-run parameters. This paper presents some new results on exogeneity in VECM models. A key concept of the analysis is the “purely exogenous long-run path”, i.e. a cointegrating vector only including “exogenous” variables. Extending earlier results of Johansen (1992b) and of Toda and Phillips (1991) among others, we propose a framework based on two canonical representations of the long-run matrix, which can constitute a suitable basis to formulate a necessary and sufficient condition for non-causality as well as a condition for strong exogeneity. An interesting property is that the statistics involved in the sequential procedures for testing these conditions are distributed as χ2 variables and can therefore easily be calculated with usual statistical computer packages, which makes our approach fully operational empirically. Finally, the power and size distortions of the sequential test procedures are analyzed with Monte-Carlo experiments.

Keywords: Cointegration; canonical representation; strong exogeneity; non-causality; power; size distortions (search for similar items in EconPapers)
JEL-codes: C15 C22 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Journal Article: Exogeneity in Vector Error Correction Models with Purely Exogenous Long‐Run Paths (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:eve:wpaper:03-10

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