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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.