Cointegration Rank Test and Long Run Specification: A Note on the Robustness of Structural Demand Systems

David Aristei and Luca Pieroni

No 809, Working Papers from Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol

Abstract: Private demand systems provide a practical application for analyzing identification issues in cointegration analysis. The paper conducts Montecarlo simulation experiments of cointegrated demand systems by assuming non-separability of government consumption. This framework enables further to test the robustness of models under alternative empirical specifications in which the homogeneity restriction is assumed to hold. The results highlight that separability of utility function with respect to government spending and the over-inclusion of lagged dependent variables introduce important bias in identifying the long run demand system, while the model specification with homogeneity restriction perform better when the theoretical hypothesis is contained in the data.Length: 34 pages

Keywords: Non-separable structural models; Demand systems; Homogeneity. (search for similar items in EconPapers)
JEL-codes: C32 C52 D12 H40 (search for similar items in EconPapers)
Date: 2008-11
New Economics Papers: this item is included in nep-ets
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Persistent link: https://EconPapers.repec.org/RePEc:uwe:wpaper:0809

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