Abstract
This paper defines parametric conditions under which a subset of variables is weakly exogenous with respect to the (multi)-cointegration parameters in I(2) VAR systems. The weak exogeneity conditions can be interpreted in terms of common trends, corresponding to the cumulation of the errors from the marginal equations into the I(2) trends, or in terms of ‘no levels and difference feedback’ into the marginal model equations. A modified version of the two-stage procedure proposed in Johansen (1995) is adopted for conditional statistical inference. Corresponding tests for the above restrictions are derived and discussed. Asymptotic properties of the tests and of the conditional estimators are analyzed. It is shown that if the conditions of weak exogeneity do not apply, the conditional estimators of the long-run parameters can be inconsistent and/or present limit distributions with nuisance parameters, according to which part of the conditions fails to hold. A test for weak exogeneity restrictions as a routine check before any analysis of conditional models is strongly recommended.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
