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on Econometric Time Series |
| By: | Erik Hjalmarsson; Par Osterholm |
| Abstract: | We investigate the properties of Johansen's (1988, 1991) maximum eigenvalue and trace tests for cointegration under the empirically relevant situation of near-integrated variables. Using Monte Carlo techniques, we show that in a system with near-integrated variables, the probability of reaching an erroneous conclusion regarding the cointegrating rank of the system is generally substantially higher than the nominal size. The risk of concluding that completely unrelated series are cointegrated is therefore non-negligible. The spurious rejection rate can be reduced by performing additional tests of restrictions on the cointegrating vector(s), although it is still substantially larger than the nominal size. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:915&r=ets |
| By: | Pär Österholm; Mikael Carlsson; Johan Lyhagen |
| Abstract: | This paper applies the maximum likelihood panel cointegration method of Larsson and Lyhagen (2007) to test the strong PPP hypothesis using data for the G7 countries. This method is robust in several important dimensions relative to previous methods, including the well-known issue of cross-sectional dependence of error terms. The findings using this new method are contrasted to those from the Pedroni (1995) cointegration tests and fully modified OLS and dynamic OLS esimators of the cointegrating vectors. Our overall results are the same across all approaches: The strong PPP hypothesis is rejected in favour of weak PPP with heterogenenous cointegrating vectors. |
| Date: | 2007–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/287&r=ets |
| By: | Deborah Gefang; Rodney Strachan |
| Abstract: | Employing a Bayesian approach, we investigate the impact of international business cycles on the UK economy in the context of a smooth transition VAR. We find that British business cycle is asymmetrically influenced by the US, France and Germany. Overall, positive and negative shocks generating in the US or France affect the UK in the same directions of the shock. Yet, a shock emanating from Germany always exerts negative accumulative effects on the UK. More strikingly, a positive shock arising from Germany negatively affects UK output growth more than a negative shock from Germany of the same size. These results suggest that the appropriate UK economic policy depends upon the origin, size and direction of the external shocks. |
| Keywords: | International business cycle; Bayesian; smooth transition vector autoregression model |
| JEL: | C11 C32 C52 E32 F42 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:08/4&r=ets |
| By: | Deborah Gefang |
| Abstract: | This paper proposes a Baysian approach to explore money-output causality within a logistic smooth transition VECM framework. Our empirical results provide substantial evidence that the postwar US money-output relationship is nonlinear, with regime changes mainly governed by the lagged inflation rates. More importantly, we obtain strong support for long-run non-causality and nonlinear Grangercausality from money to output. Furthermore, our impulse response analysis reveals that a shock to money appears to have negative accumulative impact on real output over the next fifty years, which calls for more caution when using money as a policy instrument. |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:08/5&r=ets |