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Modelling Evolving Long‐run Relationships: An Application to the Italian Energy Market
Author(s) -
Morana Claudio
Publication year - 2000
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/1467-9485.00154
Subject(s) - cointegration , econometrics , economics , instability , error correction model , computer science , energy (signal processing) , specification , short run , macroeconomics , mathematics , statistics , physics , mechanics
This paper considers a SUTSE model embedded in a dynamic framework to estimate an energy cost share model for the Italian economy in an evolving environment. This is achieved by allowing stochastic seasonal and trend components in the long‐run specification and constructing an error correction mechanism to model short‐run dynamics. Modelling instability in the structural time series approach is shown to be a very flexible approach to non conventional cointegration analysis. Tests for instability in the cointegrating regression support the evolving specification adopted.