Identification conditions in simultaneous systems of cointegrating equations with integrated variables of higher order

Rocco Mosconi,Paolo Paruolo

doi:10.1016/j.jeconom.2017.01.007

Rocco Mosconi, Paolo Paruolo

Open Access

https://doi.org/10.1016/j.jeconom.2017.01.007

Copy DOI

Abstract

This paper discusses identification of systems of simultaneous cointegrating equations with integrated variables of order two or higher, under constraints on the cointegration parameters. Rank and order conditions for identification are provided for general linear constraints, covering both cross-equation and equation-by-equation restrictions.

Highlights

CI SSE with variables integrated of order 2, or I(2) SSE, have been used to accommodate models of stock and flow variables, The identification problem of system of simultaneous equations of inventories, and of consumption, income and wealth see Klein (SSE) lies at the heart of classical econometrics, see e.g. Koopmans (1950), Hendry and von Ungern-Sternberg (1981) and Granger and (1949)
The present paper discusses identi- of CI equations consists of linear combinations of flow variables fication for SSE with integrated variables of order higher than 1, only; they represent balancing equations for flows, and they called when restrictions are only placed on the CI parameters, and shows ‘proportional control’ relations in the EC literature
This paper provides rank and order conditions for identification in I(d) systems, d = 1, 2, . . . under general linear hypotheses on the cointegrating vectors

Summary

Introduction

CI SSE with variables integrated of order 2, or I(2) SSE, have been used to accommodate models of stock and flow variables, The identification problem of system of simultaneous equations of inventories, and of consumption, income and wealth see Klein (SSE) lies at the heart of classical econometrics, see e.g. Koopmans (1950), Hendry and von Ungern-Sternberg (1981) and Granger and (1949). Let Xt be I(2) with MA (r) and of proportional-control relations (r + s) is unaffected by representation ∆2Xt = F (L)εt ; under the condition that F (z)−1 the Q transformation, and that ζ ◦′ := Q ζ ′ has the same zero- has a pole of order 2, there exists some ncI(0) process H(L)εt and restrictions and cross-equation constraints as ζ ′ in (3.3). This is the some square and nonsingular matrix B := (b2 : b1 : b0) of order identification problem in SSE with I(2) variables. Y2t and Johansen (1995)

Observational equivalence

Conclusions