Showing papers on "Cointegration published in 1998"
TL;DR: In this article, an error-correction mechanism (ECM) test is proposed for cointegration in a single-equation framework where the regressors are weakly exogenous for the parameters of interest.
Abstract: A new test is proposed for cointegration in a single-equation framework where the regressors are weakly exogenous for the parameters of interest. The test is denoted as an error-correction mechanism (ECM) test and is based upon the ordinary least squares coefficient of the lagged dependent variable in an autoregressive distributed lag model augmented with leads of the regressors. The limit distributions of the standardized coeffi cient and t-ratio versions of the ECM tests are obtained and critical values are provided. These limit distributions do not depend upon nuisance parameters but they depend on the number of regressors. Finally, we compare their power properties with those of other cointegration tests available in the literature and find the circumstances under which the ECM tests have a better performance.
1,952 citations
Book•
01 Jan 1998TL;DR: Maddala and Kim as discussed by the authors provide an analysis of unit root tests, problems with unit root testing, estimation of co-integration systems, cointegration tests, and econometric estimation with integrated regressors.
Abstract: Time series analysis has undergone many changes in recent years with the advent of unit roots and cointegration. Maddala and Kim present a comprehensive review of these important developments and examine structural change. The volume provides an analysis of unit root tests, problems with unit root testing, estimation of cointegration systems, cointegration tests, and econometric estimation with integrated regressors. The authors also present the Bayesian approach to these problems and bootstrap methods for small-sample inference. The chapters on structural change discuss the problems of unit root tests and cointegration under structural change, outliers and robust methods, the Markov-switching model and Harvey's structural time series model. Unit Roots, Cointegration and Structural Change is a major contribution to Themes in Modern Econometrics, of interest both to specialists and graduate and upper-undergraduate students.
1,528 citations
TL;DR: Using the Johansen cointegration technique, this paper found empirical evidence of long run comovements between five national stock market indexes and measures of aggregate real activity including the real oil price, real consumption, real money, and real output.
373 citations
TL;DR: In this paper, the authors examined the causality issue between energy consumption and GDP for South Korea and Singapore, with the aid of cointegration and error-correction modeling, and found that bidirectional causality between GDP and energy consumption for both South Korea, and unidirectional causal relationship from energy consumption to GDP for Singapore.
331 citations
TL;DR: The authors examined the extent to which fluctuations in the money stock anticipate (or Granger cause) fluctuations in real output using a variety of rolling window and increasing window estimation techniques, and found that the relation between income, money, prices, and interest rates is stable, as long as sufficient data are used, and that there is cointegration among the variables considered, although co-integration spaces become very difficult to estimate precisely when smaller windows are used.
267 citations
251 citations
Posted Content•
TL;DR: In this paper, the authors estimate export demand elasticities for a large number of developing and developed countries, using time-series techniques that account for the nonstationarity in the data The average long-run price and income elasticities are found to be approximately -1 and 15, respectively.
Abstract: The paper estimates export demand elasticities for a large number of developing and developed countries, using time-series techniques that account for the nonstationarity in the data The average long-run price and income elasticities are found to be approximately -1 and 15, respectively Thus, exports do react to both the trade partners` income and to relative prices Africa faces the lowest income elasticities for its exports, while Asia has both the highest income and price elasticities The price and income elasticity estimates have good statistical properties
247 citations
TL;DR: In this article, the authors used stationary data and Johansen's cointegration analysis to provide new trade elasticities for almost 30 countries, including the US, Canada, Australia and New Zealand.
239 citations
TL;DR: In this article, an empirically constant, data-coherent, error-correction model for inflation in Australia is developed, where the level of consumer prices is a markup over domestic and import costs, with adjustments for dynamics and relative aggregate demand.
Abstract: This article develops an empirically constant, data-coherent, error-correction model for inflation in Australia. The level of consumer prices is a markup over domestic and import costs, with adjustments for dynamics and relative aggregate demand. We address issues of cointegration, general to specific modeling, dynamic specification, model evaluation and testing, parameter constancy, forecasting, and exogeneity. We also test this model against existing models of Australian prices: This model encompasses (but is not encompassed by) the existing models.
239 citations
TL;DR: Using cointegration and causality tests, this article demonstrated that the nonstationary behavior of US dollar real exchange rates, over the post-Bretton Woods era, is due to the non-stationary behaviour of real oil prices.
238 citations
TL;DR: The authors analyzes the robustness of the two most commonly used cointegration tests: the single equation based test of Engle and Granger (EG) and the system-based test of Johansen.
TL;DR: No single test is likely to be definitive in this rapidly-evolving area of econometric research; however, the results help to mitigate concern that panel data analyses of national health care expenditures are misspecified.
TL;DR: In this paper, the authors address the practical determination of cointegration rank, which is difficult for many reasons: deterministic terms play a crucial role in limiting distributions, and systems may not be formulated to ensure similarity to nuisance parameters; dummy variables alter critical values, often greatly; multiple co-integration vectors must be identified to allow inference; data may be 1(2) rather than 1(1), altering distributions; and conditioning must be done with care.
Abstract: The paper addresses the practical determination of cointegration rank. This is difficult for many reasons: deterministic terms play a crucial role in limiting distributions, and systems may not be formulated to ensure similarity to nuisance parameters; finite-sample critical values may differ from asymptotic equivalents; dummy variables alter critical values, often greatly; multiple cointegration vectors must be identified to allow inference; the data may be 1(2) rather than 1(1), altering distributions; and conditioning must be done with care. These issues are illustrated by an empirical application of multivariate cointegration analysis to a small model of narrow money, prices, output and interest rates in the UK. Copyright 1998 by Blackwell Publishers Ltd
01 Jan 1998
TL;DR: In this paper, the authors test for cointegration between total energy consumption, real income and price level of two Asian LDCs: Thailand and Sri Lanka, by using a dynamic vector error-correction model, then analyse the direction of Granger-causation and hence the within-sample Grangerexogeneity or endogeneity of each of the variables.
Abstract: Unlike previous studies on the casual relationship between energy consumption and economic growth, this paper illustrates how the finding of cointegration(i.e. long-term equilibrium relationship) between these variables, may be used in testing Granger causality. Based on the most recent Johansen's multiple cointegration tests preceded by various unit root or nonstationarity tests, we test for cointegration between total energy consumption, real income and price level of two Asian LDCs: Thailand and Sri Lanka. Nonrejection of cointegration between variables rules out Granger noncausality and implies at least one way of Granger-causality either unidirectional or bidirectional. Secondly, by using a dynamic vector error-correction model, we then analyse the direction of Granger-causation and hence the within-sample Grangerexogeneity or endogeneity of each of the variables. Thirdly, the relative strength of the causality is gauged (through the dynamic variance decomposition technique) by decomposing the total ...
TL;DR: This article employed multivariate trace statistic, Johansen method, and the recently proposed Bierens nonparametric approach to test for pairwise cointegration between the US and each of the six largest European equity markets, namely those of the UK, Germany, France, Switzerland, Italy, and Netherlands.
Abstract: The paper employs the multivariate trace statistic [Pcirc]z, the Johansen method, and the recently proposed Bierens nonparametric approach to test for pairwise cointegration between the US and each of the six largest European equity markets, namely those of the UK, Germany, France, Switzerland, Italy, and the Netherlands. The analysis covers the period 03/01/83–29/11/96. The results from these tests are robust and consistent in suggesting that the US market is not pairwise cointegrated with any of the European markets, which is in contrast to previous evidence on the linkages between the US and European markets. This finding implies that there exist potential long-run benefits in risk reduction from diversifying in US stocks and stocks in any of the major European markets.
TL;DR: This paper developed a multivariate error-correction model to test the causality between exports and growth in 15 Asian countries, 1967-91, and found that export expansion causes growth in two-third of these countries, corrected for simultaneity between the causal factors.
Abstract: This paper develops a multivariate error-correction model to test the causality between exports and growth in 15 Asian countries, 1967–91. The underlying series are tested as non-stationary in levels but stationary in first differences. The causal factors are cointegrated in five of these countries only. Causality test results indicate that export expansion causes growth in two-third of these countries, corrected for simultaneity between the causal factors. A country with a large public sector, higher level of economic development, and which is less vulnerable to external economic shocks is more likely to reap the benefits of export promotion strategies. The causal inferences are fairly stable over the sample period.
TL;DR: In this paper, the authors test for cointegration between total energy consumption, real income and price level of two Asian LDCs: Thailand and Sri Lanka, by using a dynamic vector error-correction model, then analyse the direction of Granger-causation and hence the within-sample Grangerexogeneity or endogeneity of each of the variables.
Abstract: Unlike previous studies on the casual relationship between energy consumption and economic growth, this paper illustrates how the finding of cointegration(i.e. long-term equilibrium relationship) between these variables, may be used in testing Granger causality. Based on the most recent Johansen's multiple cointegration tests preceded by various unit root or nonstationarity tests, we test for cointegration between total energy consumption, real income and price level of two Asian LDCs: Thailand and Sri Lanka. Nonrejection of cointegration between variables rules out Granger noncausality and implies at least one way of Granger-causality either unidirectional or bidirectional. Secondly, by using a dynamic vector error-correction model, we then analyse the direction of Granger-causation and hence the within-sample Grangerexogeneity or endogeneity of each of the variables. Thirdly, the relative strength of the causality is gauged (through the dynamic variance decomposition technique) by decomposing the total ...
TL;DR: In this article, an extension to the Engle-granger testing strategy by permitting asymmetry in the adjustment toward equilibrium in two different ways is proposed. But the test has good power and size properties over the original test when there are asymmetric departures from equilibrium.
Abstract: Cointegration among interest rates for instruments with different maturities has been widely tested with mixed results. This paper provides an extension to the Engle-granger testing strategy by permitting asymmetry in the adjustment toward equilibrium in two different ways. We demonstrate that our test has good power and size properties over the Engle-Granger test when there are asymmetric departures from equilibrium. Empirical tests using US yields confirm the asymmetric nature of error correction among interest rates of different maturities.
TL;DR: In this paper, conditions for reliable economic policy analysis based on econometric models, focusing on the econometrics concepts of exogeneity, cointegration, causality, and invariance are examined.
Abstract: This overview examines conditions for reliable economic policy analysis based on econometric models, focusing on the econometric concepts of exogeneity, cointegration, causality, and invariance. Weak, strong, and super exogeneity are discussed in general, and these concepts are then applied to the use of econometric models in policy analysis when the variables are cointegrated. Implications follow for model constancy, the Lucas critique, equation inversion, and impulse response analysis. A small money-demand model for the United Kingdom illustrates the main analytical points. This article then summarizes the other articles in this issue's special section on exogeneity, cointegration, and economic policy analysis.
TL;DR: In this paper, the authors analyzed the long-run relationship between gold and silver prices using a simple bivariate cointegrating system and found that the cointegration could have occurred during some periods and especially during the bubble and post-bubble periods.
Abstract: This paper analyses the long-run relationship between gold and silver prices. The three main questions addressed are: the influence of a large bubble from 1979:9 to 1980:3 on the cointegration relationship, the extent to which by including error-correction terms in a non-linear way we can beat the random walk model out-of-sample, and the existence of a strong simultaneous relationship between the rates of return of gold and silver. Different efficient single-equation estimation techniques are required for each of the three questions and this is explained within a simple bivariate cointegrating system. With monthly data from 1971 to 1990, it is found that cointegration could have occurred during some periods and especially during the bubble and post-bubble periods. However, dummy variables for the intercept of the long-run relationships are needed during the full sample. For the price of gold the non-linear models perform better than the random walk in-sample and out-of-sample. In-sample non-linear models for the price of silver perform better than the random walk but this predictive capacity is lost out-of-sample, mainly due to the structural change that occurs (reduction) in the variance of the out-of-sample models. The in-sample and out-of-sample predictive capacity of the non-linear models is reduced when the variables are in logs. Clear and strong evidence is found for a simultaneous relationship between the rates of return of gold and silver. In the three type of relationships that we have analysed between the prices of gold and silver, the dependence is less out-of-sample, possibly meaning that the two markets are becoming separated. © 1998 John Wiley & Sons, Ltd.
Journal Article•
TL;DR: In this article, a variable is said to be causal for another in the long run if knowledge of the past of the former improves long-run predictions of the latter in a multivariate non-stationary, possibly cointegrated framework.
Abstract: In this paper we give a precise definition of long-run causality in a multivariate non-stationary, possibly cointegrated, framework. A variable is said to be causal for another in the long run if knowledge of the past of the former improves long-run predictions of the latter. In a VAR framework, we show that long-run non-causality can be easily tested with a Wald statistics, conditionnally on the cointegration rank. The methodology is used to study long-run causal links between US, German, and French long-term interest rates from January 1990 to June 1997.
TL;DR: In this article, the forecasting of cointegrated variables is considered and it is shown that at long horizons nothing is lost by ignoring cointegration when forecasts are evaluated using standard multivariate forecast accuracy measures.
Abstract: We consider the forecasting of cointegrated variables, and we show that at long horizons nothing is lost by ignoring cointegration when forecasts are evaluated using standard multivariate forecast accuracy measures. In fact, simple univariate Box–Jenkins forecasts are just as accurate. Our results highlight a potentially important deficiency of standard forecast accuracy measures—they fail to value the maintenance of cointegrating relationships among variables—and we suggest alternatives that explicitly do so.
TL;DR: The authors examines several central issues in the empirical modeling of money demand, including economic theory, data measurement, parameter constancy, the opportunity cost of holding money, cointegration, model specification, exogeneity, and inferences for policy.
Abstract: This paper examines several central issues in the empirical modeling of money demand. These issues include economic theory, data measurement, parameter constancy, the opportunity cost of holding money, cointegration, model specification, exogeneity, and inferences for policy. Review of these issues at a general level is paralleled by discussion of specific empirical applications, including some new results on the demand for narrow money in the United Kingdom.
TL;DR: A survey of the recent literature dealing with I(2) variables in economic time series, that is, processes that require to be differenced twice in order to become stationary, can be found in this paper.
Abstract: This paper provides a selective survey of the recent literature dealing with I(2) variables in economic time series, that is, processes that require to be differenced twice in order to become stationary. With reference to particular economic models intuition is provided of why I(2)‐and polynomial cointegration are features likely to occur in economics. The properties of I(2) series are discussed and I review topics such as: Testing for double unit roots, representations of I(2) cointegrated systems, and hypothesis testing in single equations as well as in systems of equations. Different data sets are used to illustrate the various econometric and statistical techniques.
Abstract: Recent tests using long data series find evidence in favor of long-run PPP. These tests may have reached the wrong conclusion. Using artificial data calibrated to nominal exchange rates and disaggregated data on prices, we show that tests on long-run PPP have serious size biases. In the baseline case, unit root and cointegration tests with a nominal size of five per cent have true sizes that range from 0.90 to 0.99 in 100-year long data series, even though there is a permanent component that accounts for 42% of the 100-year forecast variance of the real exchange rate. Tests of stationarity are shown to have very low power in the same circumstances.
TL;DR: The authors discuss the role of exogeneity, causality, cointegration, co-breaking, and invariance in linear cointegrated VARs and illustrate their importance in a bivariate model of money and interest rates in the UK over the last century.
Abstract: Since the objective of economic policy is to change target variables in the DGP, when economic policy analysis uses an econometric model, it is important that the model delivers reliable inferences about policy responses in the DGP. This requires that the model be congruent and encompassing, and hence exogeneity, causality, cointegration, co-breaking, and invariance all play major roles. We discuss these roles in linear cointegrated VARs, prior to illustrating their importance in a bivariate model of money and interest rates in the UK over the last century.
TL;DR: In this article, the authors employ a cointegration technique to estimate trade elasticities in less developed countries and show that trade elasticity is large enough to support devaluation as a successful policy to improve the trade balance.
Abstract: The Marshall-Lerner condition postulates that if the sum of import and export demand elasticities add up to more than one, devaluation should improve the trade balance in the long-run. This paper is the first to employ a long-run method, i.e., cointegration technique to estimate trade elasticities in less develop countries. In most cases the results reveal that indeed trade elasticities are large enough to support devaluation as a successful policy to improve the trade balance. [F10, F31]