Cointegrating VAR models with endogenous I(0) variables: theoretical extensions and an application to UK monetary policy

Dr Martin Weale and Dr. James Mitchell ()
Authors registered in the RePEc Author Service: George Kapetanios

No 169, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

Abstract: This paper generalises the manner in which 1(0) variables enter coinregraring VAR models. Rath erthan assuming the 1(0) variables are strictly exogenous the 1(0) variables arc allowed to depend on linear co mbinatio ns of the coinregraring vectors. As well as representing a more general statistical representation of a set of variables in a coinregraring VAR model, the approach facilitates structural interpretation of the equations governing the determination of the 1(0) variables. In contrast to traditional structural VAR models identification of the short run relations, or equivalently the structural shocks, corresponding to the 1(0) variables is achieved without the imposition of a priori restrictions on the contemporaneous relations between the I(I) variables and/or the variance‐covariance matrix of the structural shocks. Our approach is illustrated with an application to UK monetary policy.

Date: 2000-08
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:nsr:niesrd:169

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