Econometric Methods for Modelling Systems With a Mixture of  i (1) and  i (0) Variables | Zendy

Fisher Lance A. | Zendy; Huh HyeonSeung | Zendy; Pagan Adrian R. | Zendy

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Econometric Methods for Modelling Systems With a Mixture of i (1) and i (0) Variables

Author(s) -

Fisher Lance A.,

Huh HyeonSeung,

Pagan Adrian R.

Publication year - 2016

Publication title -

journal of applied econometrics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 2.878

H-Index - 99

eISSN - 1099-1255

pISSN - 0883-7252

DOI - 10.1002/jae.2459

Subject(s) - cointegration , econometrics , vector autoregression , sign (mathematics) , economics , variable (mathematics) , autoregressive model , econometric model , parametric statistics , structural vector autoregression , set (abstract data type) , variables , mathematics , statistics , computer science , macroeconomics , monetary policy , mathematical analysis , programming language

Summary This paper considers structural models with both I (1) and I (0) variables. The structural shocks associated with either set of variables could be permanent or transitory. We classify the shocks as (P1,P0) and (T1,T0), where P/T distinguishes permanent/transitory, while 1/0 means they are attached to structural equations with either I (1) or I (0) variables as their ‘dependent’ variable. We show that P0 shocks can affect cointegration analysis and provide a formula to compute the permanent component if they are present. Finally, we reformulate a well‐known empirical structural vector autoregression showing the impact of P0 shocks when there are just long‐run parametric and sign restrictions. Copyright © 2015 John Wiley & Sons, Ltd.

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