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ANALYZING I(2) SYSTEMS BY TRANSFORMED VECTOR AUTOREGRESSIONS
Category: Econometrics
COINTEGRATION: ESTIMATION II Tuesday 27th August 2002, 14:30 - 16:00, Room: 5.6
Session Chair(s):
Hans Christian Kongsted, University of Copenhagen, DENMARK
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Abstract:
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This paper derives the restrictions that apply to a transformed model obtained by a minimal I(2)-to-I(1)
transformation. The
relationship between the parameters of the I(2) vector autoregression and the transformed model is characterized,
including the coefficients of polynomially cointegrating relationships.
In a simulation experiment, unrestricted reduced rank regression in the transformed model, which is common in applied
work, yields only a minor loss of efficiency compared to imposing the
restrictions. A properly transformed vector
autoregression thus provides a practical and effective means for inference on
the parameters of the I(2) model.
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Find this file in the \Papers\1621\ folder of this CD-ROM.
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