EXPLORING EQUILIBRIUM RELATIONSHIPS IN ECONOMETRICS THROUGH STATIC MODELS: SOME MONTE CARLO EVIDENCE

EXPLORING EQUILIBRIUM RELATIONSHIPS IN ECONOMETRICS THROUGH STATIC MODELS: SOME MONTE CARLO EVIDENCE INTRODUCTION This paper investigates the properties of estimators of claimed long-run relationships between integrated processes based on static models. The relationships involved are asserted to have the long-run or equilibrium property that deviations from them are bounded (in a statistical sense). This assertion is tested, and the associated coefficients are estimated, by fitting static regressions. Our concern is to assess the relevance for econometric practice of recent asymptotic theory in this area. This task is a topical one. Hypothesized long-run relationships such as the quantity theory and the Fisher effect are familiar in macroeconomics. Lucas (1980), Whiteman (1984), Summers (1983, 1984), McCallum (1984) and others have debated the usefulness of estimating these relationships using static models. The theory of cointegration developed by Granger and Engle (1985) shows how tests for the existence of equilibrium relationships can be constructed using these models. Our interest is primarily in their suggestion that static ordinary least squares regressions in some cases also may be used to parameterize such relationships. Thus we mainly consider a simple data generation process (we shall use the abbreviation DGP), discussed by Granger and Engle, in which the null hypothesis is that two time series are comtegrated. Using http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Oxford Bulletin of Economics & Statistics Wiley

EXPLORING EQUILIBRIUM RELATIONSHIPS IN ECONOMETRICS THROUGH STATIC MODELS: SOME MONTE CARLO EVIDENCE

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Publisher
Wiley
Copyright
© 1986 Blackwell Publishing Ltd
ISSN
0305-9049
eISSN
1468-0084
DOI
10.1111/j.1468-0084.1986.mp48003005.x
Publisher site
See Article on Publisher Site

Abstract

INTRODUCTION This paper investigates the properties of estimators of claimed long-run relationships between integrated processes based on static models. The relationships involved are asserted to have the long-run or equilibrium property that deviations from them are bounded (in a statistical sense). This assertion is tested, and the associated coefficients are estimated, by fitting static regressions. Our concern is to assess the relevance for econometric practice of recent asymptotic theory in this area. This task is a topical one. Hypothesized long-run relationships such as the quantity theory and the Fisher effect are familiar in macroeconomics. Lucas (1980), Whiteman (1984), Summers (1983, 1984), McCallum (1984) and others have debated the usefulness of estimating these relationships using static models. The theory of cointegration developed by Granger and Engle (1985) shows how tests for the existence of equilibrium relationships can be constructed using these models. Our interest is primarily in their suggestion that static ordinary least squares regressions in some cases also may be used to parameterize such relationships. Thus we mainly consider a simple data generation process (we shall use the abbreviation DGP), discussed by Granger and Engle, in which the null hypothesis is that two time series are comtegrated. Using

Journal

Oxford Bulletin of Economics & StatisticsWiley

Published: Aug 1, 1986

References

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