Nonstationary Time Series Analysis and Cointegration

By Colin P. Hargreaves | Go to book overview
Save to active project

One must acknowledge that estimating the long run is essentially a much more complicated procedure than OLS and yet because the results often end up with a single equation for the long run it looks much simpler. In fact, Engle and Granger 1987 article gave the impression that it was that simple and that OLS could be used. The additional idea that economic theory was essentially only about the long run added to the emphasis on the long run. The Johansen estimator tends to lead one to thinking that there is something almost magical about the long run that is worth studying on its own. Many papers that use the Johansen estimator have often left the problem after estimating the long run, sometimes blithely giving lip- service to how one shouldnow go on to making a full model. Peter Phillips emphasised the view of many that estimating the long run is only a stepping stone to a more sharply specified, economically interpretable, system of equations.

We are moving into a new phase in our understanding of these issues. Questions about the identification of the system are being raised but it seems unclear as to how specifying a separate system of long-run equations affects the identification of an economic system. For a while it seemed as if one could analyse the long run on its own and that economic policy should only aim at controlling the long run. However there is no causal direction in a cointegrating vector, only a co-relation over time. The question of control in nonstationary systems needs to be addressed carefully for the new econometric understanding to be of use to policy-makers.


REFERENCES

ANDREWS, D. W. K. ( 1991), "'Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation'", Econometrica, 59, pp. 817-858.

ENGLE, R. F. and C. W. J. GRANGER ( 1987), "'Co-integration and error Correction: Representation, Estimation, and Testing'", Econometrica, Vol. 55, No. 2, pp. 251-76.

HARGREAVES, C. P. ( 1991), Australian Long-Run Money Demand, mimeo.

HARGREAVES, C. P. (ed.) ( 1992), Macroeconomic Modelling of the Long Run, Edward Elgar Publishing Ltd, Aldershot, UK.

JORESKOG, K. G. and D. SORBOM ( 1981), LISREL V: Analysis of linear structural relationships by maximum likelihood and least squares methods, Research Report 81-8, Department of Statistics, Uppsala, Sweden.

JUSELIUS, K. and C. P. HARGREAVES ( 1992), 'Long-Run Relations in Australian Monetary Data', Chapter 10, pp. 249-86, in Hargreaves ( 1992).

KWIATKOWSKI, D., P. C. B. PHILLIPS, P. SCHMIDT and Y. SHIN ( 1992), "'Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure are We that Economic Time Series Have a Unit Root?'", Journal of Econometrics, 54, pp. 159-78.

PHILLIPS, P. C. B. and B. E. HANSEN ( 1990), "'Statistical Inference in Instrumental Variables Regression with I(1) Processes'", Review of Economic Studies, Vol. 57, pp. 99-125.

PHILLIPS, P. C. B. and M. LORETAN ( 1991), "'Estimating Long-Run Eonomic Equilibria'", Review of Economic Studies, Vol. 59, pp. 407-36.

-8-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited page

Bookmark this page
Nonstationary Time Series Analysis and Cointegration
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen
/ 310

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?