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Mixed Causal-Noncausal Autoregressions with Strictly Exogenous Regressors

Alain Hecq (), João Issler () and Sean Telg ()

MPRA Paper from University Library of Munich, Germany

Abstract: The mixed autoregressive causal-noncausal model (MAR) has been proposed to estimate economic relationships involving explosive roots in their autoregressive part, as they have stationary forward solutions. In previous work, possible exogenous variables in economic relationships are substituted into the error term to ensure the univariate MAR structure of the variable of interest. To allow for the impact of exogenous fundamental variables directly, we instead consider a MARX representation which allows for the inclusion of strictly exogenous regressors. We develop the asymptotic distribution of the MARX parameters. We assume a Student's t-likelihood to derive closed form solutions of the corresponding standard errors. By means of Monte Carlo simulations, we evaluate the accuracy of MARX model selection based on information criteria. We investigate the influence of the U.S. exchange rate and the U.S. industrial production index on several commodity prices.

Keywords: Mixed causal-noncausal process; non-Gaussian errors; identification; rational expectation models; commodity prices (search for similar items in EconPapers)
JEL-codes: C22 E31 E37 (search for similar items in EconPapers)
Date: 2017-08-11
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-mac and nep-ore
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